Revenue Function From Demand Equation

The relationship between average cost and quantity is the average cost function.

Revenue function from demand equation. However if the price is 70 dollars the demand is 5000. The revenue function shows the maximum income a firm can obtain from selling a given quantity of its. We should note the two limiting cases. Solution or modeling the revenue function notice that the demand depends on the price of the product.

Enjoy the videos and music you love upload original content and share it all with friends family and the world on youtube. Figure 2 shows a graph of the average cost function. Find the maximum revenue for the demand equation eq q 5x 130 eq. Find the revenue function.

When we compare this example inverse demand curve top and the resulting marginal revenue curve bottom we notice that the constant is the same in both equations but the coefficient on q is twice as large in the marginal revenue equation as it is in the demand equation. The higher the price the less the demand. To calculate maximum revenue determine the revenue function and then find its maximum value. We previously noted that a linear demand price function has a negative slope.

Note that the average cost function starts out very high but drops quickly and levels off. For example you could write something like p 500 1 50q. What is your observation. If the slope of the demand curve is 0 the consumers have a fixed price they will pay for however much of the product is available.

For the ice cream bar venture the equation for this function would be ac c q 40 000 0 3 q q 0 3 40 000 q.