1Cademy - Visualizing Revenue Changes from Increased Output for Different Demand Curves

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Visualizing Revenue Changes from Increased Output for Different Demand Curves

This example demonstrates how an increase in output from 5 to 6 units impacts total revenue for two firms with different demand elasticities, illustrating the gain from the additional unit and the loss from the price reduction on existing units.\n\n* Scenario 1 (More Elastic Demand): For the firm with a demand curve through E(5, 20) and (7, 0), increasing output to 6 lowers the price to $10.\n * New Total Revenue: The resulting revenue of $60 is shown by the area enclosed by coordinates (0, 0), (0, 10), (6, 10), and (6, 0).\n * Revenue Gain: The $10 gain from the 6th unit is the area defined by (5, 0), (5, 10), (6, 10), and (6, 0).\n * Revenue Loss: The $50 loss from the price drop on the first 5 units is the area bounded by (0, 10), (0, 20), (5, 20), and (5, 10).\n * Net Effect: Total revenue falls from $100 to $60, as the revenue loss of $50 is bigger than the revenue gain of $10.\n\n* Scenario 2 (Less Elastic Demand): For the firm with a demand curve through (0, 30), E(5, 20), and (6, 18), increasing output to 6 results in a price of $18.\n * New Total Revenue: The new revenue of $108 is represented by the area with corners at (0, 0), (0, 18), (6, 18), and (6, 0).\n * Revenue Gain: The $18 gain from the 6th unit is the area within (5, 0), (5, 18), (6, 18), and (6, 0).\n * Revenue Loss: The $10 loss from the price reduction on the first 5 units is the area defined by (0, 18), (0, 20), (5, 20), and (5, 18).\n * Net Effect: Total revenue rises from $100 to $108, as the revenue gain of $18 is bigger than the revenue loss of $10.