<Dd> R ′ = ⟨ R ⟩ (1 + d ⟨ R ⟩ d Q Q ⟨ R ⟩) (\ displaystyle R' = \ langle R \ rangle \ left (1 + (\ frac (d \ langle R \ rangle) (dQ)) (\ frac (Q) (\ langle R \ rangle)) \ right)) </Dd> <Dd> R ′ = ⟨ R ⟩ (1 + 1 / e ⟨ R ⟩) (\ displaystyle R' = \ langle R \ rangle (1 + 1 / e_ (\ langle R \ rangle))) </Dd> <P> where e is the price elasticity of demand . If demand is inelastic (e <1) then R' will be negative, because to sell a marginal (infinitesimal) unit the firm would have to lower the selling price so much that it would lose more revenue on the pre-existing units than it would gain on the incremental unit . If demand is elastic (e> 1) R' will be positive, because the additional unit would not drive down the price by so much . If the firm is a perfect competitor, so that it is so small in the market that its quantity produced and sold has no effect on the price, then the price elasticity of demand is negative infinity, and marginal revenue simply equals the (market - determined) price . </P> <P> Profit maximization requires that a firm produces where marginal revenue equals marginal costs . Firm managers are unlikely to have complete information concerning their marginal revenue function or their marginal costs . Fortunately, the profit maximization conditions can be expressed in a "more easily applicable form" or rule of thumb . </P>

Explain the concept of average revenue and marginal revenue