Total Revenue and Its Concepts
Relation between AR and MR Curves Assignment Help, Tutor Help
Concepts of Revenue
Total Average and Marginal Revenue The revenue of a firm jointly with its costs ascertains profits. Now let us discuss the concepts of revenue. The term revenue denotes to the receipts obtained by a firm from the scale of definite quantities of a commodity at various prices. The revenue concept relates to total revenue, average revenue and marginal revenue. 1. Total Revenue – It is the total sale proceeds of a firm by selling a commodity at a given price. If a firm sells 3 units of an article at $ 24, its total revenue is 3 x 24. Thus total revenue is price per unit proliferated by the number of nits sold, i.e. TR = P x Q, where TR is the total revenue, P the price and Q the quantity. 2. Average Revenue – It is the average receipts from the sale of certain units of the commodity. It is obtained by dividing the total revenue by the number of units sold. The average revenue of a firm is in fact the price of the commodity at each level of output since TR = P x Q, therefore, AR = TR / Q = P x Q / Q = P. 3. Marginal Revenue MR – In addition to total revenue as a result of a small hike in the sale of a firm. Algebraically it is the total revenue earned by selling N units of the commodity instead of N-1 i.e., MRn = TRn – TRn-1.
Relation Between AR and MR Curves 1. Under Ideal Rivalry – The average revenue curve is a horizontal straight line parallel to X axis and the marginal revenue curve coincides with it. This is since under ideal rivalry the number of firms selling an identical product is very huge. The price is determined the market forces of supply and demand so that only one price tends to prevail for the whole industry.
In the diagram 1, each firm can sell as much it wishes at the market price OP. Thus the demand for the firm’s product becomes infinitely elastic.
In the diagram 2, since the demand curve is the firm’s average
Concepts of Revenue
Total Average and Marginal Revenue The revenue of a firm jointly with its costs ascertains profits. Now let us discuss the concepts of revenue. The term revenue denotes to the receipts obtained by a firm from the scale of definite quantities of a commodity at various prices. The revenue concept relates to total revenue, average revenue and marginal revenue. 1. Total Revenue – It is the total sale proceeds of a firm by selling a commodity at a given price. If a firm sells 3 units of an article at $ 24, its total revenue is 3 x 24. Thus total revenue is price per unit proliferated by the number of nits sold, i.e. TR = P x Q, where TR is the total revenue, P the price and Q the quantity. 2. Average Revenue – It is the average receipts from the sale of certain units of the commodity. It is obtained by dividing the total revenue by the number of units sold. The average revenue of a firm is in fact the price of the commodity at each level of output since TR = P x Q, therefore, AR = TR / Q = P x Q / Q = P. 3. Marginal Revenue MR – In addition to total revenue as a result of a small hike in the sale of a firm. Algebraically it is the total revenue earned by selling N units of the commodity instead of N-1 i.e., MRn = TRn – TRn-1.
Relation Between AR and MR Curves 1. Under Ideal Rivalry – The average revenue curve is a horizontal straight line parallel to X axis and the marginal revenue curve coincides with it. This is since under ideal rivalry the number of firms selling an identical product is very huge. The price is determined the market forces of supply and demand so that only one price tends to prevail for the whole industry.
In the diagram 1, each firm can sell as much it wishes at the market price OP. Thus the demand for the firm’s product becomes infinitely elastic.
In the diagram 2, since the demand curve is the firm’s average