Posted by Anjali Kaur on Oct 01, 2020

Types of Revenue

There are 3 types of revenue that we mainly study under the forms of different markets. These includes:

  1. Total Revenue (TR)
  2. Average Revenue (AR)
  3. Marginal Revenue (MR)

A quick note: Subscribe to our website to get answers to your curriculum questions. Let’s learn the types of revenue in detail.

1. Total Revenue

Total revenue refers to the total receipts from the sale of a given quantity of a commodity.

It is the total income of a firm.

Formulas of Total Revenue

Total Revenue = Price X Quantity Sold

TR = PxQ

or

TR = Summation of Marginal Revenue

TR curve under Perfect Competition

Under perfect competition, as the prices are fixed by the industries, the TR curve is upward sloping. As shown below:

AmosWEB is Economics: Encyclonomic WEB*pedia

TR curve under Imperfect Competition

The imperfect competition includes monopoly, monopolistic competition, and oligopoly. TR curve under these market form looks like:

AmosWEB is Economics: Encyclonomic WEB*pedia

2. Average Revenue

Average revenue refers to the revenue per unit of output sold. It is also known as the price.

Formula for AR

AR = Total Revenue/ Quantity

AR = TR/Q

Since, TR = PxQ

AR = PxQ/ Q

Hence,

AR = PxQ

Shape of AR curve under perfect competition

Under perfect competition, prices are fixed. So, AR is also fixed. It is horizontal in shape, or parallel to the x-axis. As shown below,

Shape of AR curve under Imperfect market

AR curve is downward sloping. AR curve is also known as the demand curve under an imperfect market.

3. Marginal Revenue

Marginal revenue is the additional revenue generated from the sale of an additional unit of output.

Formula for MR

MR = Change in TR/ Change in Q

MR= 1/2 of AR curve

MR Curve under perfect competition

Under Perfect competition MR and AR (Price) are same. As shown below:

MR Curve under imperfect competition

Under any other market form, MR is a downward sloping curve, which becomes negative.

MR = 1/2 of AR under these market forms.

Thank You!

You can read the related concepts:

  1. The price elasticity of supply
  2. The supply curve
  3. What is production function?
  4. Terms related to production concept
  5. Law of diminishing returns to a factor
  6. Total cost, Total variable cost and Total fixed cost
  7. The relation between TC, TVC and TFC
  8. Average total cost
  9. The demand curve

Feel free to join our Facebook group and subscribe to this website to get daily educational content in your mailbox.

Happy Learning!


Disclosure: Some of the links on the website are adds, meaning at no additional cost to you, I will earn a commission if you click through or make a purchase. Please support so that I can continue writing great content for you.

Photo by Ilyuza Mingazova on Unsplash

Learn with Anjali started because there wasn't an easy-to-consume resource to help students with their studies. Anjali is on single-minded mission to make you successful!

If you would like to suggest topics, leave feedback or share your story, please leave a message.

Leave a message