Class 12 Microeconomics Sandeep Garg Solutions Chapter 7 – Revenue
FAQs on Sandeep Garg Class 12 Microeconomics Chapter 7 Solutions
1. How should one approach solving the practical problems in Sandeep Garg's Class 12 Microeconomics Chapter 7 on Revenue?
To correctly solve the practical problems, follow this step-by-step method as per the CBSE pattern:
First, carefully identify the given variables in the problem, which are typically Price (P) and Quantity (Q).
Apply the correct formulas to calculate the required revenue concepts: Total Revenue (TR = P × Q), Average Revenue (AR = TR / Q), and Marginal Revenue (MR = TRn - TRn-1).
Organise your calculations clearly in a table format to show the relationship between output and the different types of revenue. This presentation helps in securing full marks.
2. What are the three main types of revenue concepts for which solutions are provided in this chapter?
The solutions for Sandeep Garg Chapter 7 explain how to calculate and interpret the three fundamental revenue concepts in microeconomics:
Total Revenue (TR): The total amount of money a firm receives from the sale of its total output.
Average Revenue (AR): The revenue earned per unit of output sold. It is calculated by dividing Total Revenue by the quantity sold and is always equal to the price.
Marginal Revenue (MR): The additional revenue generated from selling one more unit of output.
3. What is the correct step-by-step method to calculate Marginal Revenue (MR) when Total Revenue (TR) at different output levels is given?
To calculate Marginal Revenue (MR) from a schedule of Total Revenue (TR), you must find the change in TR for each additional unit sold. The correct formula to apply is MRn = TRn - TRn-1, where 'TRn' is the total revenue from 'n' units and 'TRn-1' is the total revenue from 'n-1' units. For example, if the TR of 5 units is ₹100 and the TR of 4 units is ₹85, the MR of the 5th unit is ₹100 - ₹85 = ₹15.
4. Why is a firm's Average Revenue (AR) curve the same as its demand curve?
This is a crucial concept. The Average Revenue (AR) is the revenue per unit, which is calculated as Total Revenue divided by Quantity (AR = TR/Q). Since Total Revenue is Price multiplied by Quantity (TR = P × Q), the formula for AR simplifies to AR = (P × Q) / Q = P. Therefore, Average Revenue is always equal to the price of the commodity. A demand curve graphically represents the relationship between the price of a commodity and the quantity demanded. Since the AR curve plots the price at each level of output, it is identical to the firm's demand curve.
5. How do the solutions demonstrate the difference in AR and MR curves under perfect competition and monopoly?
The solutions illustrate this key difference based on market structure:
Under Perfect Competition, a firm is a price-taker, and the price is constant. Therefore, every additional unit is sold at the same price. This results in AR being equal to MR (AR = MR), and the curve is a horizontal line parallel to the x-axis.
Under Monopoly or Monopolistic Competition, a firm must lower the price to sell more units. Consequently, both AR and MR curves are downward sloping. However, the MR curve lies below the AR curve because the fall in revenue from the price reduction applies to all units, not just the additional one sold.
6. Can Marginal Revenue (MR) be zero or negative? What do the solutions indicate about Total Revenue (TR) in these cases?
Yes, Marginal Revenue can be zero or negative, particularly in markets like monopoly. The solutions demonstrate the following relationship:
When MR is positive, TR is increasing.
When MR is zero, TR reaches its maximum point. A rational producer will aim to produce up to this level.
When MR is negative, it means selling an additional unit causes the TR to decrease. This occurs because the price reduction needed to sell the extra unit outweighs the revenue gained from it.
7. How can a student use the solutions to determine the quantity at which Total Revenue (TR) is maximised?
By analysing the solution tables, a student can find the point of maximum Total Revenue by observing the Marginal Revenue column. According to the relationship between TR and MR, Total Revenue is maximised at the level of output where Marginal Revenue (MR) is equal to zero. In the solved problems, you should look for the quantity level at which the MR value becomes zero. Any production beyond this point will lead to a fall in TR as MR turns negative.
