Revenue is the total repeats of the firm by selling output. It is the amount of money, which the firm receives by the sale of its output in the market, the receipts obtained are the revenue of the firm.
Types of revenue
There are three core concepts of revenues in economics. They are:
a. Total revenue (TR)p
b. Average revenue (AR)
c. Marginal revenue (MR)
1. Total revenue (TR)
The revenue is the total receipts obtained by the sale of the given units of output. Total revenue can also be defined as the sum of marginal revenue.
Total revenue is calculated by multiplying output and price.
Total revenue = price * output
TR =P *Q
For example: suppose the price of a book is Rs 200 and the producer sells 20 books.
Here total revenue =price * output
TR = P * Q
=Rs 200 * 20
Total revenue=Rs 4000
2. Average revenue AR
It refers to the price or Revenue per unit of a community sold. It is measured as the ratio of total revenue (TR) to outputs sold (Q).
Average revenue = total revenue/output
AR = TR/Q
Average Revenue is synonymous to price. Since the demand curve shows the relationship between price and the quantity demanded, it also represents the average revenue or price at which the various amounts of a commodity are sold, therefore, the average revenue curve of the firm is the same as the demand curve of the consumer.
AR = TR/Q =P*Q/Q =P
3. Marginal Revenue (MR)
The additional revenue is obtained by selling an additional unit of output. In other words marginal revenue is the ratio of change in total revenue to change in a number of output sold.
MR = deltaTR/delta Q
Delta TR = changing the total revenue, and
DeltaQ = changing the total quantity of a commodity sold.
It is the change in total revenue. Marginal revenue may be expressed as;
MR = TRn – TRn-1
TRn = TR from the cell of current output.
TRn-1 = TR from the sale of previous output
For example; support stated revenue by selling 20 units of output is Rs 521 unit is Rs 560.
Here change in total revenue (Delta TR) = Rs 560 – Rs 500 = Rs 60 and change in output sold (delta Q) = 21- 20= 1
MR = deltaTR /delta Q = Rs 60/1= Rs 60