Meaning of revenue

The amount of money which the firm receives by the sale of its output in the market is known as its revenue. It is also known as ‘Sales Receipts’. There are three types of Revenue.

Total revenue

Total revenue refers to the total amount of money that a firm receives from the sale of its products.

Mathematically, TR = P x Q

Where,
• TR=Total Revenue
• P=Price
• Q=Quantity sold
Example

If the shopkeeper sold 10 boxes of chocolates each at  500/- then his total revenue would be

TR = P x Q

= 500 x 10

TR= 5,000

Average revenue

Average revenue is the revenue per unit of the commodity sold. It is calculated by dividing the total revenue by the number of units sold.

AR = TR/Q

Where,

AR=Average Revenue

TR=Total Revenue

Q=Quantity

Or

AR = P x Q/Q

Where

AR=Average Revenue

P=Price

Q=Quantity sold

Or, AR=P

Thus, average revenue means price of the product.

Example

If the seller made revenue of  25000 selling 10 sarees, then the average revenue per saree is

AR= TR / Q

=25000/10

AR=  2,500/-

Marginal Revenue

Marginal revenue is the addition made to the total revenue by selling one more unit of a commodity

MR = Change in TR ÷ Change in Q

Or,

MR = TRn – TRn-1

Where, Q= number of units

MRn= Marginal revenue of the nth unit

TRn= Total revenue of n units

TRn-1= Total revenue of n-1 units

Example

If the total revenue of a merchant by selling 50 mobile phones is  5,00,000 and by selling 51 mobiles phones, it is  5,20,000, then MR is

MR51 = TR at 51 – TR at 50

= 5,20,000 – 5,00,000

MR=  20,000.  