This document defines and explains key concepts related to revenue for a firm:
- Total revenue is the total money received from sales of all output. It is calculated as price multiplied by quantity.
- Average revenue is total revenue divided by total output, representing revenue per unit.
- Marginal revenue is the change in total revenue from selling one more unit of output. It can be positive, zero, or negative.
- Under perfect competition, average revenue is constant and equal to price. But for other market structures, both average and marginal revenue fall as output increases, with marginal revenue falling more sharply and becoming negative.
This document defines and explains key concepts related to revenue for a firm:
- Total revenue is the total money received from sales of all output. It is calculated as price multiplied by quantity.
- Average revenue is total revenue divided by total output, representing revenue per unit.
- Marginal revenue is the change in total revenue from selling one more unit of output. It can be positive, zero, or negative.
- Under perfect competition, average revenue is constant and equal to price. But for other market structures, both average and marginal revenue fall as output increases, with marginal revenue falling more sharply and becoming negative.
This document defines and explains key concepts related to revenue for a firm:
- Total revenue is the total money received from sales of all output. It is calculated as price multiplied by quantity.
- Average revenue is total revenue divided by total output, representing revenue per unit.
- Marginal revenue is the change in total revenue from selling one more unit of output. It can be positive, zero, or negative.
- Under perfect competition, average revenue is constant and equal to price. But for other market structures, both average and marginal revenue fall as output increases, with marginal revenue falling more sharply and becoming negative.
This document defines and explains key concepts related to revenue for a firm:
- Total revenue is the total money received from sales of all output. It is calculated as price multiplied by quantity.
- Average revenue is total revenue divided by total output, representing revenue per unit.
- Marginal revenue is the change in total revenue from selling one more unit of output. It can be positive, zero, or negative.
- Under perfect competition, average revenue is constant and equal to price. But for other market structures, both average and marginal revenue fall as output increases, with marginal revenue falling more sharply and becoming negative.
the sale of his product is known as revenue of the firm. Total Revenue, Average Revenue and Marginal Revenue Revenue has three aspects: Total Revenue Average Revenue Marginal Revenue Total Revenue (TR) Total revenue refers to money receipts of a firm from the sale of its total output. It is es mated as the mul ple of price and quan ty of output. TR = PxQ, (Here, TR = Total revenue, P = Price per unit of output, and Q = Quan ty (or units) of output.) Total revenue is the sum of money receipts of a producer corresponding to a given level of output.
Average Revenue (AR)
Average revenue is the revenue per unit of output. It is equal to total revenue divided by total output. AR = TR/Q, (Here, AR = Average Revenue, TR = Total Revenue, and Q = Total Output) Average revenue is the per unit revenue corresponding to a given level of output of a firm.
Marginal Revenue (MR)
Marginal revenue is the addi onal revenue that a producer expects from the sale of one more unit of a commodity. In other words, it is the change in total revenue which results from the sale of one more more (or more (or one less) unit of a commodity.] It is expressed as: MR = ΔTR/ΔQ = TRn – TRn-1 (Here, MR = Marginal revenue, ΔTR= Change in total revenue, ΔQ= Change in output, TRn= Total revenue from ‘n’ units of the output and TRn-1= Total revenue from ‘n – 1’ units of the output.) Marginal revenue is the addi on to total revenue on account of sale of one more unit of output.
WHEN AR IS CONSTANT The average revenue curve of a firm is parallel to the X-axis, whereas under monopoly it is nega vely sloped A perfectly compe ve firm is a price taker and can sell as much as it wishes to at the prevailing price. Therefore, AR is equal to price and remains constant MR=AR WHEN AR IS NOT CONSTANT AR and MR are equal only when AR is constant. It is also important to note that the firm does not sell any unit if the TR or AR becomes either zero or nega ve. Both AR and MR fall with an increase output However, MR falls at a rate more than the rate of fall in AR, making the MR curve steeper than the AR curve. MR curve can be zero and nega ve, while AR remains posi ve.
It must be noted that MR can fall to zero and can even
become nega ve. However, AR can be neither be zero nor nega ve as TR is always posi ve. Rela onship between TR and MR (When Price falls with a rise in Output) In markets like imperfect markets, the price tends to fluctuate and adjust according to the market forces of demand and supply. A firm can increase its volume of sales only by decreasing the price, so the AR falls with an increase in sales. MR is the addi on to TR when one more unit of output is sold. So, TR will increase when MR is posi ve, 1. TR will fall when MR is nega ve, 2. TR will be maximum when MR is zero. In the above graph, the TR curve increases as long as MR is posi ve, reaches its highest point (A) when MR is zero (B) and starts to decline when MR becomes nega ve. Thus, the rela onship between TR and MR when price falls with an increase in output can be summed up as:
TR increases as long as MR is posi ve.
TR is at its maximum when MR is zero. TR starts to decline when MR is nega ve Q).CAN MR BE ZERO OR NEGATIVE? ANS=> Yes, MR can be zero or nega ve, MR can be zero when TR remains same with rise in output. MR can be nega ve when TR falls with rise in output. 2. TR starts to decline when MR is nega ve
