Revenue

2. Revenue
Output
Revenue
Output X
Y
Y
X
AR=MR
AR
MR

3. Concepts
of
Revenue
Total Revenue Marginal Revenue Average Revenue

4. • Total Revenue: Sum of all sale receipts or income of a firm.
TR=PхQ where P stands for Price of the product & Q stands
for Quantity
• Marginal Revenue: Change in TR which results from the sal
of one more or one less unit of output. ∆TR/ ∆Q or MR=TRn –
TRn-1
• Average Revenue: Per unit revenue received from the sale o
a commodity. AR=TR/Q=PQ/Q=P

6. • Since Price remains constant, TR also increases at a
constant rate . Due to this reason, the TR curve is a
positively sloped straight line

7. Units of
Commodity
Total
Revenue
Price/
Average
Revenue
Marginal
Revenue
1 5 5 5
2 10 5 5
3 15 5 5
4 20 5 5
5 25 5 5

8. AR=MR
P
Output
TR
O X
Y
X
Y
0
Output
Revenue
Revenue

9. • imperfect competition is a market situation
where the firm is price maker and it knows that
it must reduce price if it wants to sell more.
• Therefore, AR curve of the firm is downward
sloping. This leads to downward slope of MR
curve also.
• But the slope of MR curve is double the slope
of AR curve.

10. Output Price=AR Total
Revenue
Marginal
Revenue
1 10 10 10
(10-0=10)
2 9.5 19 9
(19-10=9)
3 9 27 8
(27-19=8)
4 8.5 34 7
(34-27=7)

11. MR
AR
X
Y
Output
R
e
v
e
n
u
e
0

12. • Following results emerge:
1. Both AR and MR are derived from TR
2. AR and MR are both downward sloping.
3. Slope of MR is double the slope of AR
4. AR is always positive but same is not true about
MR as MR may be positive, zero or even
negative

13. • In case of monopoly, AR & MR curves
slope downward.
• At different points of demand curve,
elasticity of demand is different.
• Before point A, Elasticity of Demand ‘E’>1
meaning that firm must reduce price if it
wants to sell more. Here we find MR>0
• At point A, Elasticity of Demand ‘E’=1
implying that MR =0 meaning that if firm
changes its price now, its total revenue will
be same.
• After A, elasticity of demand ‘E’<1 meaning
MR is negative.
• Concludingly, firm earns profit if it fixes
higher price.
R
E
V
E
N
U
E
OUTPUT
E>1
E=1
E<1
A
B
MR
AR