Concept of Total, Average, and Marginal Revenue

Any producer or business firm earns revenue from selling a certain quantity of goods or services. The main revenue concepts are:

1. Total Revenue (TR)

2. Average Revenue (AR)

3. Marginal Revenue (MR)

(A) Total Revenue (TR)

Total revenue is the total amount a producer or firm receives from selling a certain quantity of goods or services at a given price within a specific period. In other words, total revenue is obtained by multiplying the price per unit by the total quantity sold. Mathematically, total revenue is calculated as:

TR = P × Q

Where:

• TR = Total Revenue

• P = Price per unit

• Q = Total quantity sold

Example: If the price of a product is Rs. 60 per kg and the total quantity sold is 1,000 kg, the total revenue can be calculated as:

TR = 60 × 1,000 = Rs. 60,000

(B) Average Revenue (AR)

Average revenue is the revenue earned per unit of goods or services sold. It is calculated by dividing total revenue by the total quantity sold. In other words, average revenue is calculated by dividing the total revenue obtained from selling a specific quantity of goods or services by the total quantity sold.

AR = TR / Q

Alternatively, since total revenue is the product of price and quantity,

AR = (P × Q) / Q = P

Thus, the average revenue is equal to the price of the product.

Example: If the total revenue from selling 50 units of a product is Rs. 300, the average revenue is calculated as:

AR = 300 / 50 = Rs. 6 per unit

(C) Marginal Revenue (MR)

Marginal revenue is the change in total revenue resulting from the sale of one additional unit of a good or service. In other words, marginal revenue is the change in total revenue resulting from the sale of one additional unit of a product. It is calculated as follows:

MR = ΔTR / ΔQ

Where:

• MR = Marginal Revenue

• ΔTR = Change in Total Revenue

• ΔQ = Change in Quantity Sold

For Example: If a firm sells 10 units of a product and earns a total revenue of Rs. 200, and by selling 11 units, the total revenue increases to Rs. 220, the marginal revenue from selling the 11th unit is calculated as:

MR = (220 - 200) / (11 - 10) = 20 / 1 = Rs. 20