THEORY OF REVENUE

PPT BY : Under Supervision of :

PINTU RAM (R450217075) Mrs. B K CHATURVEDI

RISHAB KUMAR (R450217095)
BALLB(Hons.) with specialization in Energy Law
 THEORY OF REVENUE
• Total Revenue
 Total money earned by a firm when it sells a given amount a given amount of
output.
 TR = P * Q
 Where : P is the per unit price
• Q is the quantity of output sold.
* Means Multiply
TOTAL REVENUE SCHEDULE
OUTPUT TOTAL REVENUE
0 0
1 10
2 18
3 24
4 28
5 28
6 24
 TOTAL REVENUE
A

TR
TR

O Output
• Uptil point A, TR is increasing
• At point A, TR is maximum
• Byond point, TR start declining
AVERAGE REVENUE
AR = Total Revenue
Output Sold
= P*Q = P
Q
AR = per unit price of the commodity
 AVERAGE REVENUE
OUTPUT TOTAL REVENUE AVERAGE REVENUE
0 0 _
1 10 10
2 18 9
3 24 8
4 28 7
5 28 5.6
6 24 4
 AVERAGE REVENUE

• As more unit of output sold, price must falls

• AR decreasing as Q increasing
• AR curve is the demand curve faced by the firm

AR

AR

Quantity
 MARGINAL REVENUE
MR = Change in total revenue
Change in unit of output sold
MR = d TR
dQ
Marginal Revenue Schedule
OUTPUT TOTAL REVENUE MARGINAL REVENUE
1 0 _
2 10 10
3 18 8
4 24 6
5 28 4
6 28 0
7 24 -4
 MARGINAL REVENUE

MR Curve
Downward sloping
Could be negative

MR

Quantity MR
 RELATIONSHIP B/W TR AND MR
• Prior to point A,MR is positive but falling, TR increases at a diminishing rate
• At point A, MR = 0 and TR is maximum A
• Beyond point A, MR is falling and negative; TR TR
starts falling TR

Output

MR

Output MR
 RELATIONSHIP B/W AR AND MR
• When MR = AR, AR is at its maximum
• When MR is decreasing and is less than AR, AR is falling
• MR can be 0; AR can never be 0

Revenue
(Rs) AR

Output MR
RELATIONSHIP OF TR, MR,&AR UNDER PERFECT COMPETITION
• TR rises at a constant rate
• AR is constant
• MR is constant TR
• AR= MR
TR/AR/MR AR=MR

TR,AR and MR under perfect competition

Unit sold Market price(Rs) TR(Rs) AR(Rs) MR(Rs)
1 3 3 3 3 Unit of Output sold
2 3 6 3 3
3 3 9 3 3
 RELATIONSHIP OF TR,AR & MR UNDER
IMPERFECT COMPETITION
• Firm retains some flexibility to determine price
• As price falls – quantity sold increases AR curve is downward sloping
• MR also reduces
• TR increases at an A
diminishing rate and TR
then falls TR

O
Output

MR/AR AR
MR
THANK YOU