RevenueRevenue
Learning outcomes
Understand
what is meant
by revenue
Define and calculate total,
average and marginal
revenue
Understand ...
What is revenue?
Revenue is the
receipt of money
from the sale of a
firm’s output of
goods or services in a
given time per...
What determines revenue?
Revenue is
determined by two
things:
-how much is sold
-how much it is sold
for
Revenue = units s...
Total revenue
Simplistically, revenue will
rise the more units are sold.
Assume a car dealer sells
new cars at £18,000 eac...
Total revenue
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
200000
0 1 2 3 4 5 6 7 8 9 10 11
Sales per week...
Average and
marginal revenue
Average revenue (AR) =
The average receipts per
unit sold
Marginal revenue (MR) =
Extra reven...
Average and marginal revenue
Sales Total
revenue (£)
Average
revenue (£)
Marginal
revenue (£)
0 0
1 18,000
2 36,000
3 54,0...
Average and marginal revenue
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
0 1 2 3 4 5 6 7 8 9 10 11
Sales
Rev...
Price, demand and revenue
Often firms will have to cut
prices to sell more output.
Citroen is likely to sell more
new cars...
Average and marginal revenue
Calculate TR
and MR.
Draw
graphs, one
underneath
the other,
of
-TR against
sales
-AR and MR
a...
Average and marginal revenue
Sales Average
revenue
(£)
Total revenue
(£000,000s)
Marginal
revenue
0 30,000 0
1,000 28,000 ...
Sales
Sales
Revenue
Revenue
TR
ARMR
Reducing price first
raises revenue
Eventually reducing
price will reduce
revenue
Reve...
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Revenue

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Revenue

  1. 1. RevenueRevenue
  2. 2. Learning outcomes Understand what is meant by revenue Define and calculate total, average and marginal revenue Understand the determinants of revenue
  3. 3. What is revenue? Revenue is the receipt of money from the sale of a firm’s output of goods or services in a given time period. It is the money coming in to a firm.
  4. 4. What determines revenue? Revenue is determined by two things: -how much is sold -how much it is sold for Revenue = units sold x price per unit
  5. 5. Total revenue Simplistically, revenue will rise the more units are sold. Assume a car dealer sells new cars at £18,000 each. Draw a diagram to show how revenue increases with the amount of new cars sold per week
  6. 6. Total revenue 0 20000 40000 60000 80000 100000 120000 140000 160000 180000 200000 0 1 2 3 4 5 6 7 8 9 10 11 Sales per week Revenueperweek(£)
  7. 7. Average and marginal revenue Average revenue (AR) = The average receipts per unit sold Marginal revenue (MR) = Extra revenue from an extra unit of sales
  8. 8. Average and marginal revenue Sales Total revenue (£) Average revenue (£) Marginal revenue (£) 0 0 1 18,000 2 36,000 3 54,000 4 72,000 5 90,000 6 108,000 7 126,000 8 144,000 9 162,000 10 180,000 Calculate AR and MR and draw a diagram of AR and MR against sales
  9. 9. Average and marginal revenue 0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 0 1 2 3 4 5 6 7 8 9 10 11 Sales Revenue(£) AR MR
  10. 10. Price, demand and revenue Often firms will have to cut prices to sell more output. Citroen is likely to sell more new cars by reducing prices. It does this by offering ‘cashbacks’. The inverse relationship between price and sales is known as the ‘law of demand’ – the lower the price the higher the demand
  11. 11. Average and marginal revenue Calculate TR and MR. Draw graphs, one underneath the other, of -TR against sales -AR and MR against sales Sales Average revenue (£) Total revenue (£000,000s) Marginal revenue 0 30,000 1,000 28,000 2,000 26,000 3,000 24,000 4,000 22,000 5,000 20,000 6,000 18,000 7,000 16,000 8,000 14,000 9,000 12,000 10,000 10,000 11,000 8,000 12,000 6,000 13,000 4,000 14,000 2,000
  12. 12. Average and marginal revenue Sales Average revenue (£) Total revenue (£000,000s) Marginal revenue 0 30,000 0 1,000 28,000 28 28,000 2,000 26,000 52 24,000 3,000 24,000 72 20,000 4,000 22,000 88 16,000 5,000 20,000 100 12,000 6,000 18,000 108 8,000 7,000 16,000 112 4,000 8,000 14,000 112 0 9,000 12,000 108 -4,000 10,000 10,000 100 -8,000 11,000 8,000 88 -12,000 12,000 6,000 72 -16,000 13,000 4,000 52 -20,000 14,000 2,000 28 -24,000 Check your calculations before you draw the diagrams. Plot marginal in between each sales point
  13. 13. Sales Sales Revenue Revenue TR ARMR Reducing price first raises revenue Eventually reducing price will reduce revenue Revenue is maximised where MR = 0
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