Concepts of Revenue

Concepts of Revenue:

The amount of money that the firm receives by the sale of its yield in the market is termed as its revenue.

Total Revenue:

Total Revenue refers to the net amount of money which a firm receives from the sale of its products.

Mathematically,

TR = PQ

Here,
TR = Total Revenue;
P = Price;
Q = Quantity sold.

Let’s assume a firm sells 1000 units of a product at the price of $ 10 each, the net revenue will be 1000 x  $ 10 = $ 10,000/-

Average Revenue:

Average revenue is revenue per unit of the commodity sold. It is computed by dividing the net revenue by the number of units sold.

AR = TR / Q 

Here,
AR = Average Revenue
TR = Total Revenue
Q = Quantity sold

Example: Average Revenue = $ 10,000/1000 = $ 100/-

Therefore average revenue means product price.

Marginal Revenue:

Marginal Revenue is the addition made up to the net revenue by selling one more unit of a commodity.

For illustration, whenever 10 units of a product are sold at the price of $ 15 and 11 units are sold at $ 14/-, the marginal revenue becomes:

MRn = TRn – TRn-1

= $ (11x 14) – $ (10x 15)
= $ 154 – 150
= $ 4

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