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Economics

Study Notes

Revenue Curves in Competitive Markets

Level:
A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

In a perfectly competitive market, total revenue (TR) is a diagonal straight line passing through the origin. Market demand and supply determine the price and each firm is a price taker.

Thus, average revenue is constant

Thus, average revenue – marginal revenue at the prevailing market price

Changes in the market price will bring about a change in the gradient of the total revenue curve for firm in a perfectly competitive market

TR when there is a rise in market price

A rise in market price leads to an increase in the gradient of the total revenue curve

A rise in market price in a perfectly competitive market

TR when there is a fall in market price

A fall in market price leads to a reduction in the gradient of the total revenue curve

A fall in market price in a perfectly competitive market

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