Revenue and Revenue Curves

Concept of 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=∑MR

or 
TR=P×Q

Where,

TR= Total Revenue

∑MR= Sum of Marginal Revenues
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 quantities 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=TR_n -TR_n-1
Where,
TR_{n =} Current Total Revenue
TR_{n-1 =} Initial Total Revenue