Types of Revenue
There are 3 types of revenue that we mainly study under the forms of different markets. These includes:
- Total Revenue (TR)
- Average Revenue (AR)
- Marginal Revenue (MR)
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
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:
TR curve under Imperfect Competition
The imperfect competition includes monopoly, monopolistic competition, and oligopoly. TR curve under these market form looks like:
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
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.
You can read the related concepts:
- The price elasticity of supply
- The supply curve
- What is production function?
- Terms related to production concept
- Law of diminishing returns to a factor
- Total cost, Total variable cost and Total fixed cost
- The relation between TC, TVC and TFC
- Average total cost
- The demand curve
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