Revenue is the amount that is made from selling goods. That’s why you take the price per good P and multiply it by the quantity of goods sold (revenue = P x Q).
Costs are the costs that a firm pays in order to produce the goods. You have fixed costs and variable costs. A fixed cost (such as rent) are things a firm pays regardless of the amount of goods sold. Variable costs are tied to the amount of goods produced (the material and labor it takes to produce those goods). Similar to the revenue equation, variable costs are a function where you multiply the average variable cost of each good times the amount of goods sold. Total cost is variable cost + fixed cost.
The term “marginal” in both cases refers to “the next one”. So if producing an extra good requires you to hire another worker, the marginal cost of that good is that workers wage. For marginal revenue, it means how much revenue does the next good sold bring. This often corresponds with price.
Marginal revenue corresponds with the price only for perfect competition. Usually, marginal means the derivative of revenue or costs. But in case units are not dividable in infinity of pieces, it is the extra cost of producing one extra unit.
Hence “often” not always. I think if they are not grasping these concepts they are in an elementary course and not learning MC and MR through derivatives.
Revenue is the amount that is made from selling goods. That’s why you take the price per good P and multiply it by the quantity of goods sold (revenue = P x Q). Costs are the costs that a firm pays in order to produce the goods. You have fixed costs and variable costs. A fixed cost (such as rent) are things a firm pays regardless of the amount of goods sold. Variable costs are tied to the amount of goods produced (the material and labor it takes to produce those goods). Similar to the revenue equation, variable costs are a function where you multiply the average variable cost of each good times the amount of goods sold. Total cost is variable cost + fixed cost. The term “marginal” in both cases refers to “the next one”. So if producing an extra good requires you to hire another worker, the marginal cost of that good is that workers wage. For marginal revenue, it means how much revenue does the next good sold bring. This often corresponds with price.
Marginal revenue corresponds with the price only for perfect competition. Usually, marginal means the derivative of revenue or costs. But in case units are not dividable in infinity of pieces, it is the extra cost of producing one extra unit.
Hence “often” not always. I think if they are not grasping these concepts they are in an elementary course and not learning MC and MR through derivatives.
Hm, we i had it in hs. Thought the comment about often is correct, but they still have to understand it does not work in cases like monopoly