3.3.1 Revenue Quiz: Pearson Edexcel Economics A, Unit 3

The 20 questions

1. Total revenue is calculated as:

   • Price multiplied by quantity sold
   • Average cost multiplied by quantity sold
   • Price divided by quantity sold
   • Profit plus total cost of production

2. Which statement about average revenue is correct?

   • Average revenue equals marginal revenue for every firm in every market
   • Average revenue equals total revenue divided by quantity and equals the price of the good
   • Average revenue is always greater than the price charged to buyers
   • Average revenue is found by adding fixed cost to total revenue

3. Marginal revenue is best defined as:

   • The change in total revenue from selling one more unit of output
   • The average revenue earned across all units sold in the period
   • The price charged for the last unit of the product only
   • The total revenue earned when output is zero

4. Demand is price elastic when the price elasticity of demand is:

   • Equal to 0, so a price cut raises total revenue for the firm
   • Greater than 1 in absolute value, so a price cut raises total revenue
   • Less than 1 in absolute value, so a price cut raises total revenue
   • Equal to 1, so any price change must alter total revenue

5. Price falls from £10 to £8 and quantity demanded rises from 100 to 150. Using the midpoint method, what is the price elasticity of demand?

   • 1.8 in absolute value, so demand is elastic
   • 0.6, so demand is inelastic
   • 1.0, so demand is unit elastic
   • 3.0, so demand is perfectly elastic

6. Total revenue is £2,400 when 60 units are sold. What is average revenue?

   • £144,000
   • £4
   • £60
   • £40

7. Price is £4 and 250 units are sold. What is total revenue?

   • £1,250
   • £1,000
   • £62.50
   • £254

8. Total revenue rises from £600 to £660 when output rises from 30 to 31 units. What is the marginal revenue of the 31st unit?

   • £630
   • £22
   • £20
   • £60

9. At 40 units, total revenue is £800. What is average revenue?

   • £32,000
   • £20
   • £40
   • £200

10. Price elasticity of demand is -2. Price rises by 5 per cent. What happens to quantity demanded?

    • It falls by 0.4 per cent
    • It falls by 2.5 per cent
    • It falls by 10 per cent
    • It falls by 5 per cent

11. A firm faces inelastic demand and considers raising its price. What is the effect on total revenue?

    • Total revenue rises, because quantity falls by proportionally less than the price rises
    • Total revenue stays the same because demand is unit elastic
    • Total revenue falls, because quantity falls by more than price rises
    • Total revenue is zero for all inelastic goods at any price

12. A firm cuts its price on a product with elastic demand. What happens to total revenue?

    • It falls, because the price falls by any amount at all
    • It rises, because quantity demanded increases by proportionally more than price falls
    • It stays unchanged for all values of elasticity in every market
    • It rises only if the supply of the good is perfectly inelastic

13. Marginal revenue is zero when:

    • Total revenue is zero at that level of output
    • Total revenue is at its maximum, which occurs where price elasticity of demand equals 1
    • Average revenue is zero at that level of output
    • Price is zero for every unit that is sold

14. A firm faces a PED of -0.5. To increase its revenue it should:

    • Keep its price the same in every period
    • Raise its price
    • Stop selling the product altogether
    • Lower its price

15. A firm's average revenue falls from £8 to £6 as output rises along a downward sloping demand curve. How does marginal revenue compare?

    • MR equals AR at every level of output
    • MR is constant at £8 for every extra unit sold
    • MR is above AR throughout the output range
    • MR is below AR and falls faster than AR

16. Demand is P = 60 - 2Q. At which output is total revenue maximised?

    • Q = 7.5
    • Q = 20
    • Q = 30
    • Q = 15

17. Using the same demand curve P = 60 - 2Q, what is the maximum total revenue?

    • £900
    • £450
    • £600
    • £225

18. Evaluate the claim: 'Lowering price always raises revenue.'

    • False in general: a price cut raises revenue only if demand is elastic, and revenue falls if demand is inelastic
    • True when demand is perfectly inelastic in every market
    • False, because revenue depends only on the firm's costs of production
    • True in every case, since more units are always sold

19. Price is cut from £10 to £8 and quantity rises from 100 to 130 (midpoint method). What is the elasticity and effect on revenue?

    • Unit elastic, so total revenue is unchanged
    • Perfectly elastic, so total revenue doubles
    • Elastic, at about 1.17, so total revenue rises
    • Inelastic, at about 0.85, so total revenue falls

20. A firm faces elastic demand at its current price. Why might it still choose not to cut price?

    • Price cuts always raise profit automatically with no other effects
    • A price cut may trigger rival retaliation or lower margins, so higher revenue may not mean higher profit
    • Demand cannot be elastic at any price in any market
    • Revenue always falls after any price cut in every market

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