An economic concept that measures the responsiveness in the quantity demanded of one commodity when a change in price takes place in another good. The measure is calculated by taking the percentage change in the quantity demanded of one good, divided by the percentage change in price of the substitute good
· If two goods are perfect substitutes for each other, cross elasticity is infinite.
· If two goods are totally unrelated, cross elasticity between them is zero.
· If two goods are substitutes like tea and coffee, the cross elasticity is positive.
· When two goods are complementary like tea and sugar to each other, the cross elasticity between them is negative.
Total Revenue (TR) and Marginal Revenue
Total revenue is the total amount of money that a firm receives from the sale of its goods. If the firm practices single pricing rather than price discrimination, then TR = total expenditure of the consumer = P × Q
Marginal revenue is the revenue generated from selling one extra unit of a good or service. It can be determined by finding the change in TR following an increase in output of one unit. MR can be both positive and negative. A revenue schedule shows the amount of revenue generated by a firm at different prices −
| Price | Quantity Demanded | Total Revenue | Marginal Revenue |
| 10 | 1 | 10 | |
| 9 | 2 | 18 | 8 |
| 8 | 3 | 24 | 6 |
| 7 | 4 | 28 | 4 |
| 6 | 5 | 30 | 2 |
| 5 | 6 | 30 | 0 |
| 4 | 7 | 28 | -2 |
| 3 | 8 | 24 | -4 |
| 2 | 9 | 18 | -6 |
| 1 | 10 | 10 | -8 |
Initially, as output increases total revenue also increases, but at a decreasing rate. It eventually reaches a maximum and then decreases with further output. Whereas when marginal revenue is 0, total revenue is the maximum. Increase in output beyond the point where MR = 0 will lead to a negative MR.
