Revenue Definition:-
The term 'revenue' refers to the amount of money earned by a firm/enterprenure by way of selling its products at different prices. The revenue of a firm/enterprenure is its sales, receipts or income.
The concepts of revenue include - Total Revenue, Average Revenue and Marginal Revenue.
Total Revenue:-
The term 'total revenue' refers to the total amount of income earned by a firm/enterprenure through sale of its product. The total revenue of a firm is the sum of all sales, receipts or income of that concerned firm.
Thus,
TR = AR × Q
Where,
TR = Total revenue
AR = Average revenue or price per unit
Q = Output
As for example, if a firm sell 200 pen at Rs. 50 each, the total revenue would be
TR = Rs 50 × 200
TR = Rs 10000.
Average Revenue:-
Average revenue refers to the revenue per unit of output produced by a firm. It is obtained by dividing the total revenue by the total output.
Thus,
Average Revenue(AR)= total revenue/total output
or,
AR = TR/Q
As for evample, for a firm having total revenue of Rs10000 after selling 200 pens,we have
AR = 10000/200
= 50
Hence, the average revenue is Rs50 which is the price of the product.
Marginal Revenue:-
The tern marginal revenue refers to the amount of change in the total receipts due to the sale of an additional units. In other words, marginal revenue is the change in total revenue which results from the sale of one more unit of output.
Thus,
MR = ∆TR/∆Q
or, MR = TRn - TRn-1
Where, MR = marginal revenue
TRn = total revenue from 'n' units.
TRn-1 = total revenue from (n-1) units.
For example, is by selling 201 units of the pen the total revenue increases from Rs10000 to Rs10050, then the marginal revenue from sale of the additional one unit is Rs 50.
Since,
MR = TRn - TRn-1
= Rs 10050 - Rs10000
= Rs 50
Relationship between AR and MR curve:-
The relationship between AR and MR curve is given below -
* when MR is more than AR, AR is increasing,
* when MR is equal to AR, AR is constant,
* when MR is less than AR, AR is decreasing.
The relationship between AR and MR is shown in the figure given above. As in the figure , when marginal revenue (MR) is rising and above average revenue(AR), AR is rising upward. When MR is equal to AR, AR is constant and parallel to the X-axis. When MR is falling or less than AR, AR is falling. Hence, it is MR which determines the shape of the AR curve.
Related Articles;-
Introduction to Microeconomics Part 1
Introduction to Microeconomics Part 2
No comments:
Post a Comment