Revenue and market Structure.

1. Revenue and Market
Structure
Introduction to Economics
ECO-101

2. Contents
• Concept of revenue
• Total revenue
• Average Revenue
• Average revenue and price
• Marginal revenue
• Relationship between AR and MR

3. Revenue
• Total revenue:
The total amount of sale proceeds or the total receipts of the firm.
We can calculate the Total Revenue of the firm by multiplying the
quantity of goods with its price.
TR= P×Q
For Example: If a firm sells 100 meters of cloth at a price of 4 Rs. per
meter. Then TR will be:
TR= 100 x 4= 400

4. Average Revenue
• Average Revenue (AR) is revenue earned per unit of output. Average
Revenue is obtained by dividing the total revenue by the number of
units sold in the market.
• Average Revenue represents the average sale price per unit of the
commodity.
• Average revenue can also be called demand curve.
• AR =
𝑡𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒
𝑡𝑜𝑡𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡 𝑠𝑜𝑙𝑑
• AR=
𝑇𝑅
𝑄

5. Marginal revenue
• Marginal revenue is the addition made to the total revenue by a one-
unit increase in the volume of the sales by the firm in the market.
• MR =
TR
Q
Under Perfect Competition : Price remains constant
Under Imperfect Competition: Price decreases with increase in output

6. Relationship between AR and MR Under Perfect
Competition
(when price remains constant)
• when price remains constant, firms can sell any
quantity of output at the price fixed by the market.
• 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 of every additional unit (MR) is
equal to AR.

7. Table and graph

8. Explanation
• As a result, MR curve and AR is a horizontal straight
line parallel the x-axis.
• Since MR remains constant, TR increases at a constant
rate. Due to this reason, the TR curve is positively
sloped straight line.
• As TR zero at zero level of output, TR curve starts
from the origin.

9. TR MR and AR

10. Relationship between AR and MR Under Imperfect
Competition
(when price falls with increase in output)
• It can be in the form of Monopoly, duopoly or oligopoly.
• Demand curve facing the firm is negatively sloped.
• Under imperfect competition, the behavior of MR is that it lies below
the AR Curve.

12. When firms can increase their volume of sales only by decreasing the
price, AR falls with increase in sale. It means, revenue from every
additional unit (i.e. MR) will be less than AR.
As a result, both AR and MR curve slope downwards from left to right.
Both MR and AR fall with increase in output. However, fall in MR is
double than that in AR.i.e., MR falls at a rate which is twice the rate of
fall in AR.
MR curve is steeper than AR curve because MR is limited to one unit,
whereas, AR is derived by all units.