Cost and return analysis

A. Return analysis
a. Total revenue (Gross income )
Total Revenue refers to the total amount of money that a firm receives from the sale of its
products.
TR = Y * Py
b. Average revenue
Average revenue is the revenue per unit of the commodity sold. It is calculated by dividing
the total revenue by the number of units sold.
AR = TR / Y
c. Marginal revenue
MR is defined as the additional income obtained from producing one more unit of output. It
is expressed as
MR =

changetotal income
Changetotal physical product

TR
Y

= Py.MPP = Price per unit of output

B. Cost analysis
a. Total cost
It is sum of TFC and TVC.
TC = TFC + Px* X
b. Average cost
It is the total cost per unit of output & is computed by dividing TC by the amount of output at
that particular level of output.
AC =

TC
Y

c. Marginal cost
MC is defined as the additional cost incurred from producing an additional unit of output. It
is expressed as follow
MC =

change total input cost

Changetotal physical product

TC
Y

Px
MPP