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Revenue and Revenue Curves

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Concept of Revenue:

Revenue

The total amount of money received by a firm from the sale of the product is called revenue. The profit of a firm depends upon the cost and revenue. The profit earned by the firm is the difference between the revenue and the cost of production.

According to Dooley,” The revenue of a firm is its sales receipt from the sale of a product.” There are three types of revenue which can be explained as follows:

  • Total revenue(TR)

Total revenue is the total amount of money received by a firm from the sales of a given quantity of product. Technically, total revenue is the sum of marginal revenues. Mathematically, total revenue is the product of price and quantity sold.

Symbolically;

TR=P×Q
Where,

TR= Total Revenue
P=price per unit
Q= Quantity sold

  • Average revenue(AR)

Average revenue is the price per unit. Average revenue is obtained by dividing the total revenue by the total number of quantity sold.

Symbolically;

AR=TR/Q
Where,

AR= Average Revenue
TR= Total revenue
Q= Quantity sold

  • Marginal Revenue(MR)

Marginal revenue is the addition to the total revenue from the sales of an additional unit of a commodity. Marginal revenue is obtained by dividing change in total revenue by the change in quantity sold.

Symbolically,

MR= ∆TR / ∆Q
Where,
∆TR =Change in TR
∆Q= Change in quantity sold
OR

MR=TRn -TRn-1
Where,
TRn = Current Total Revenue
TRn-1 = Initial Total Revenue

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