Revenue Maximisation

Revenue Maximisation

This is the point where the highest level of revenue (average revenue X quantity) is achieved.

Why do firm revenue maximise?

1. To help fund growth and expansion.

2. To attract top employees by being able to pay them higher wages.

What does the graph look like?

Why MR=0?

1. Because when MR is negative (MR<0) then this brings down total revenue hence we are not achieving the highest level of revenue.

2. Because when MR>0 then there is always room to increase revenue hence we are not achieving the highest level of output.

3. At Qx when MR=0, we are achieving the highest level of revenue as the TR curve shows.

Recap Questions:

1. At what point do we revenue maximise in the short term?

2. What is the formula of total revenue?

3. Give one reason why firms may seek to revenue maximise.

4. What happen when MR<0?

5. What happens when MR>0?

Answers:

1. MR=0

2. Average Revenue X Quantity or Price X Quantity

3. Either to expand or to attract top employees.

4. Total revenue falls

5. Total revenue increases but it does not reach its highest point.