Revenue & Costs | A-Level Economics Notes
These revision notes cover everything you need to know about Revenue and Costs for A-Level Economics. They're designed for students studying AQA A-Level Economics, Edexcel A-Level Economics, and Edexcel International A-Level Economics. Written by Jaisul Naik, UCL Economics graduate and A-Level Economics tutor since 2017.
What is total revenue?
Total revenue = price x quantity
What is average revenue?
Average revenue = total revenue/quantity
Average revenue = price x quantity/quantity = price
What is marginal revenue?
Marginal revenue is how much revenue one extra unit adds to a firm's total revenue.
Marginal revenue is twice as steep as average revenue
What is the relationship between PED, price and total revenue?
If a good is price inelastic in demand, firms can increase their prices and their total revenue will also increase. This is because if price goes up by 10%, demand will fall by less than 10%.
If a good is price elastic in demand, firms can raise their prices but their total revenue would decrease.
What is total cost?
Total cost = total fixed cost + total variable cost
What is total fixed cost?
Fixed costs do not change even if output increases e.g rent
What is total variable cost?
Total variable costs increase when output increases e.g. wages/ raw materials
What is average cost?
Average cost = total cost/ quantity
What is average fixed cost?
Average fixed cost = total fixed cost/ output
What is average variable cost?
Average variable cost = total variable cost/ output
How are the short-run cost curves derived?
- The short-run cost curves are derived from the assumption of diminishing marginal productivity.
- The law of diminishing marginal productivity suggests that as a firm adds more variable factors (workers) to the same fixed factors (land), marginal returns decrease.
How are the long-run cost curves derived?
The long run average cost curve is U-shaped which demonstrates economies of scale and diseconomies of scale.
The long-run average cost curve is derived from a combination of all possible short-run average cost curves.
The long-run average cost curve traces the lowest possible short-run average cost curve at each level of output.
Summary questions
- What is total revenue?
- What is average revenue?
- What is marginal revenue?
- What is the relationship between PED, price and total revenue?
- What is total cost?
- What is total fixed cost?
- What is total variable cost?
- What is average cost?
- What is average fixed cost?
- What is average variable cost?
- How are the short-run cost curves derived?
- How are the long-run cost curves derived?
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