REVENUE

CLASS 11
MICRO ECONOMICS
 NOTES
REVENUE
Revenue refers to the amount received by the firm from the sale
of the given quantity of a commodity in the market.

Revenue = Profit + Cost

Total revenue
It is the total income/receipt of a producer after selling his given
quantity of output.
That is, the addition of the revenue earned by selling every unit of
output.

TR = Price x Quantity OR TR = €MR

Marginal Revenue
It is the additional revenue which can be derived by selling one
more unit of output,
It refers to the change in total revenue with respect to per unit of
output sold

MR = TRn – TRn - 1

Average Revenue
It refers to revenue per unit of output sold.
It is computed by dividing total revenue by number of output sold.
It can be treated as same as the price.

Average revenue = Price OR AR = TR/Q

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REVENUE

Nature of AR,MR and TR

1.WHEN PRICE IS CONSTANT (PERFECT MARKET)

output price TR AR MR

1 10 10 10 10

2 10 20 10 10

3 10 30 10 10

4 10 40 10 10

5 10 50 10 10

6 10 60 10 10

Formulas Used
Total Revenue TR = Price x Quantity OR TR = €MR
Marginal Revenue MR = TRn – TRn - 1
Average revenue AR = Price

In the given diagram and schedule the price is constant. So that,

Average Revenue = Marginal Revenue(AR = MR)
Both AR and MR coincide each other in a curve that slopes
horizontal straight line parallel to x-axis.
The Total Revenue increases upward at a constant rate.
TR curve slopes at 45°.

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2.WHEN PRICE IS FALLING(IMPERFECT MARKET)
In an imperfect market, if the producer wants to increase its selling
(revenue) then he/she must reduce the price of the commodity. As
we have learnt earlier in the chapter of theory of demand that”
price and demand are negatively related”. That is the quantity
demand of a commodity increases only when the producer is ready
to reduce its price.

Schedule
UNITS PRICE TR AR MR

1 10 10 10 10

2 9 18 9 8

3 8 24 8 6

4 7 28 7 4

5 6 30 6 2

6 5 30 5 0

AR is always equal to Price

When price of a commodity decreases then both AR and MR also
decreases but TR will increase at a diminishing rate i.e. presented
in the given table and diagram in which TR curve slopes upward
and both AR and MR curve slopes downward.

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Relation between TR and MR

S no. Total Revenue Marginal Revenue

1 TR = €MR MR = TRn – TRn - 1

2 When TR increases (at decreasing rate) MR decreases

3 When TR is maximum MR=0

4 When TR declines MR becomes negative

(only in exceptional case)

Relation between AR and MR

S no. AR MR

1 AR=TR/Q MR= TRn – TRn-1

2 When AR is constant MR also constant

3 When decreases MR also decreases

4 Rate of decrease in AR is less Rate of decrease in MR is more

5 AR can’t be 0 MR can be 0
Nor negative And also be negative

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