REVENUE

Prof.Dr.Zulkifli Husin, MICROECONOMICS

Types of Revenue
Total Revenue (TR) Average Revenue (AR) Marginal Revenue (MR)

Prof.Dr.Zulkifli Husin, MICROECONOMICS

Definition
Total

Revenue is the total of price times quantity. TR = P x q Average Revenue is the revenue per unit of quantity AR = TR/q
Prof.Dr.Zulkifli Husin, MICROECONOMICS 3

Concepts of Marginal Revenue

Marginal Revenue (MR) is the increment in total revenue that comes when sales increase by 1 unit. MR can be either positive or negative. MR = R/Q= (PQ)/Q
Prof.Dr.Zulkifli Husin, MICROECONOMICS 4

Quantity (q) 0 1 2 3 4 5 6 7 8 9 10

Price P = AR = TR/q ($) 200 180 160 140 120 100 80 60 40 _ 0

Total Revenue TR = Px q ($) 0 180 320 420 480 500 480 _ 320 180 0

Marginal revenue MR ($)

180 140 100 _ 20 -20 -60 -100 -140 -180

5

Prof.Dr.Zulkifli Husin, MICROECONOMICS

$/q
200

Marginal Revenue
d = AR

A 10 0

d = AR
0

B
5

10

Output of firm

-100

MR
C Prof.Dr.Zulkifli Husin, MICROECONOMICS 6

Total Revenue
$
Ed = 1

500
Ed > 1 a

b Ed < 1 c

TR
0 5

10

Output of firm

Prof.Dr.Zulkifli Husin, MICROECONOMICS

Relationship of Elasticity with Marginal Revenue & Total Revenue

Marginal revenue is positive when demand is elastic, zero when demand is unitelastic, and negative when demand is inelastic

Prof.Dr.Zulkifli Husin, MICROECONOMICS