Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Managerial Economics & Business
Strategy
Chapter 6
Revenue Function in
Perfect Competition
and Non-Perfect
Competition Markets
8-2
Overview
▪Total Revenue
▪Average Revenue
▪Marginal Revenue
Differences Between:
I. Perfect Competition environment
II. None-Perfect Competition environment.
8-3
Total Revenue Function
▪Total revenue (TR) = Q x P
▪Average Revenue (AR) = TR/Q = (Q x P)/Q = P
▪Marginal Revenue (MR) = ∆TR/∆Q
MR is measuring the rate of change in TR as Q
changes
8-4
Total Revenue Function
▪The behavior of TR, AR and MR depends on
the Market Structure and whether the
producer is Price-Taker or Price-Maker
▪Price-Taker is a producer in perfect–
competition Market
▪Price-Maker is a producer in Non-perfect–
competition Market
Perfect Competition Environment
▪Large number of Producers.
▪Small Market Share of each Producer
▪Homogeneous (identical) product.
