Revenue function

1. MICROECONOMICS
ASSIGNMENT ǁ
REVENUE
FUNCTION
Fecilitator:
PRO. ABRAHAM BABU
Created by:
Kogeo

2. Revenue Function
• R=f(Price, Promotions, ......., Q)
• R=f(Q), keeping other factors constant.
• Revenue is the function of number output
sold.
• Therefore, Total revenue=PQ
Where, P=Price of the product
and Q=Quantity of the product produced

3. Average Revenue Vs Marginal Revenue
• Average Revenue
• Average revenue is the
revenue per unit sold
• AR=TR/Q
• Marginal Revenue
• Marginal revenue is the
change in total revenue
when additional unit is
sold
• MR= TR/ Q

4. TR
Y
O X
QUANTITY
R
E
V
E
N
U
E
TR LINE
As quantity sold increases TR also increases. The trend
is as shown above. The trend can be a straight line or
sometimes can be non-linear also (means it can
fluctuate also)

5. Trend analysis
• Break even point – it is the part of cost volume
profit analysis where total revenue equals
total cost.
• Total profit reaches its maximum where
marginal revenue equals marginal cost.
• In pure competition marginal revenue equals
average revenue.
• For noncompetitive firm marginal revenue is
less than average revenue.

6. APPLICATIONS
In the movie theatre Ex.,
• If MR > O, the firm can increase its total revenue
by increasing P.
• If MR < 0, the firm can increase its total revenue
by decreasing P.
In general,
• If MR < AR, then AR declines.
• If MR > AR, then AR rises.
• If MR = AR, then AR remains the same.