Final answer:
Revenue is a function of price, where it is calculated by multiplying the price by the quantity of products sold. The price elasticity of demand determines how changes in price will affect total revenue, which is important for businesses to consider when setting prices.
Step-by-step explanation:
The revenue is a function of price when it is expressed in terms of price. This relationship can be easily understood by the formula Total Revenue = Price x Quantity. Revenue is directly related to the price at which products are sold and the quantity of products sold.
The concept of price elasticity of demand is crucial when thinking about maximizing revenue. If demand is elastic at a certain price level, lowering the price will result in a greater percentage increase in quantity sold, thus increasing revenue. Conversely, if demand is inelastic, raising the price will lead to a smaller percentage decrease in quantity sold, and revenue will again rise. However, if demand has unitary elasticity, changes in price will not affect the total revenue.
It is important to note the difference between short run costs and long run costs when considering total cost, which is the sum of all costs associated with producing and selling products.