Make sure to do everything 2 Relationship betweon total and

2. Relationship betweon total and marginal revense Suppose few air conditioners, or it could set its price low and sell lots of air conditioners. The following table shows some possible dholoes this store could make for Its annual production there\'s an appliance store that produces and scilts air conditioners. it could set its price high and sell very Price $400 300 200 100 Quantity Total Revenue so 200 400 600 800 80,000 The following graph plots the firm\'s total revenue\" curve: that is, the relationship between quantity and total reverue glven by the two right columns in the previous table. The fiv cholces are also labeled. Finalily, two black lines are shown; these lines are tangent to the green curve at points 8 and D. DOLLARS IThousends of deliars per yearl 100200 300 400 0 OUTPUT AC unts sold per yearl For small increases in output, the slope of the total revenue curve at a point is approximately equal to the change in total revenue divided by the change in output. Therefore, the slope of the total revenue curve at any output level approximates the firms the same as the slope of a line tangent to the total revenue curve at that point. Note that the slope of the total revenue curve at any point is The following dagram plots this firm\'s demand curve. Using the previous total revenue graph, calculate the slope of the lines tangent to the total revenue curve at points B and D. Based on this information, use the black line (x symbols) to plot the firm\'s marginal revenue (MR) curve on the graph.

Solution

Slope of Total Revenue curve depicts change in revenue with respect to quantity hence this is nothing but Marginal Revenue which tells us Change in Revenue with respect to change in quantity.

Total Revenue cruve becomes flat at Optimum quantity of air conditioners where Marginal Revenue is 0 because at flat portion of TR curve slope is 0.

Total Revenue reaches maximum at 400 units of a/c each year & Marginal revenue is zero at this level of quantity.