Chapter-9 REVENUE

REVENUE

Revenue of a firm is its sale receipt or money receipt from the sale of a product.”

For example, if a firm gets Rs 16,000 from sale of 100 chairs the amount of Rs 16,000 is known as revenue.

 

TOTAL REVENUE

Total revenue is a sum of all the sales receipts.” Total revenue refers to total receipts from the sale of a given quantity of a commodity.

 

AVERAGE REVENUE

Average revenue is the per unit revenue received from the sale of a commodity.

 

                AR = TOTAL REVENUE

                                QUANTITY SOLD

 

                AR = PRICE * QUANTITY SOLD

                                QUANTITY SOLD

 

 MARGINAL REVENUE

Marginal revenue is a change in total revenue which results from the sale of one more of one less unit of output.

 

Relationship between AR and MR (when price is constant) (in case of perfect competition)

 

When price remains same at all output levels, no firm is in a position to influence the market price of the product. A firm can sell more quantity of output at the same price. It means the revenue from every additional unit MR is equal to AR. As a result, both AR and MR curves horizontal straight line parallel to the X-axis.

 

Relationship between TR and MR (when price remains constant)

(Under perfect competition)

When price remains constant, firms can sell any quantity of output at the price fixed by the market. As a result, MR curve is a horizontal straight line parallel to the X-axis. MR remains constant, TR increases at a constant rate.

 

Relationship between AR and MR (when price falls with rise in output)

(Under imperfect competition)

 

When firms can increase their volume of sales only by decreasing the price, then AR falls with increase in sale. IT means revenue from every additional unit MR will be less than AR. As a result, both AR and MR curves slope downwards from left to right.

 

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