Revenue Concepts

Total Revenue
The total revenue of a firm is the total amount of money that the firm receives by selling a certain quantity of output. Symbolically,

TR = P x Q

Where,

P = Price

Q = Quantity

TR = Total Revenue

 Example :

Calculate the total revenue for a firm which is selling 10 television sets at Rs. 21,000 each.

TR = P X Q

= 21,000   x     100

= Rs. 2,10,000

Average Revenue
Revenue earned by a firm per unit of output is called average revenue. Average revenue is equal to price in both competitive and non-competitive markets. Symbolically,

AR = TR/Q

Where

AR = Average Revenue

TR = Total Revenue

Q = Units sold

Example:

What is the average revenue for a firm which is selling 25 units of commodity X and getting the total revenue of Rs. 2000?

AR =  TR/Q

=  2000/25

=    80

Marginal Revenue
Revenue earned by selling additional unit of output is called as marginal revenue. In other words, change in the revenue resulting from a one unit increase in output is marginal revenue. Symbolically,

MR = TRn - TR n-1

Where

MR = Marginal Revenue

TR = Total Revenue

n = Unit sold

Example :

By selling 20 units, Firm ABC earned Rs. 200. After selling the 21st unit, firm’s revenue increased to 218. What is the marginal revenue in this case?

MR = TR n - TR n-1

= Total revenue by selling 21(n) units - total revenue by selling 20(n-1) units

= 218 - 200 = 18

 

Can You solve this quiz?
&lt;reference&gt;Pindyck, Rubinfeld and Mehta - Microeconomics, 7th edition&lt;/reference&gt;