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Understanding Total, Average, and Marginal Revenue

The document defines and discusses different types of revenue: total revenue, average revenue, and marginal revenue. It provides formulas for calculating each type and describes the relationships between them. Total revenue is defined as price multiplied by quantity sold. Average revenue is total revenue divided by quantity sold, or simply the price. Marginal revenue is the change in total revenue from selling one more unit. The document also discusses how demand elasticity relates to the relationship between average and marginal revenue.

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171 views18 pages

Understanding Total, Average, and Marginal Revenue

The document defines and discusses different types of revenue: total revenue, average revenue, and marginal revenue. It provides formulas for calculating each type and describes the relationships between them. Total revenue is defined as price multiplied by quantity sold. Average revenue is total revenue divided by quantity sold, or simply the price. Marginal revenue is the change in total revenue from selling one more unit. The document also discusses how demand elasticity relates to the relationship between average and marginal revenue.

Uploaded by

harshitaaanmol23
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd

Revenue Types : Total, Average and Marginal Revenue

The term Revenue refers to the income obtained by a firm


through the sale of goods at different prices. In the words
of Dooley, ‘the Revenue of a firm is its sales, receipts or
income’.
The revenue concepts are concerned with Total Revenue,
Average Revenue and Marginal Revenue.
Total Revenue

The Total Revenue of a firm is the amount received from the sale
of the output. Therefore, the total revenue depends on the price
per unit of output and the number of units sold. Hence, we have

TR = Q x P
Where,
TR – Total Revenue
Q – Quantity of sale (units sold)
P – Price per unit of output
Average Revenue
Average Revenue, as the name suggests, is the revenue that a firm
earns per unit of output sold. Therefore, you can get
the average revenue when you divide the total revenue with the total
units sold. Hence, we have,

AR=TR/Q or AR=P*Q/Q or AR=P

Where,
AR – Average Revenue
TR – Total Revenue
Q – Total units sold
Marginal Revenue
Marginal Revenue is the amount of money that a firm receives from the sale
of an additional unit. In other words, it is the additional revenue that a firm
receives when an additional unit is sold. Hence, we have

MR = TRn – TRn-1
Or
MR=ΔTR/ΔQ
Where,
MR – Marginal Revenue
ΔTR – Change in the Total revenue
ΔQ – Change in the units sold
TRn – Total Revenue of n units
TRn-1 – Total Revenue of n-1 units
Relationship between Total Revenue, Average
Revenue and Marginal Revenue
Complete the following table:

-
Complete the following table:
Complete the following table:
Average Revenue, Marginal Revenue and
Price Elasticity of Demand.
MARKET EQUILIBRIUM
Market equilibrium refers to that point which has
come to be established under a
given condition of demand and supply and has a
tendency to stick to that level, i.e. where
Demand = Supply.
If due to some disturbance we divert from our
position the economic forces will work in such a
manner that it could be driven back to its original
position, i.e., where Demand = Supply. In short it is
the position of rest.
(I)In the given schedule market equilibrium is determined at Price Rs. 3
where Market demand is equal to Market Supply.
(ii) At price 1 and 2, there is excess demand, which leads to rise in price,
resulting tendency is expansion in supply.
(iii) Similarly, at price 4 and 5, there is excess supply, which leads to fall in
price, resulting tendency is Contraction in supply.
There are 10,000 identical individual buyers in
the market for commodity X, each with a
demand function given by Qdx= 12-2Px and
1000 identical producers of commodity X, each
with a supply function given by Qsx=20Px.

(i) Find market demand Function and market


supply function for commodity X.
(II) Obtain equilibrium price and quantity.
(i) Market demand function:
Qdx= 10,000(12-2Px )= 1,20,000-20,000Px
Market supply function:
Qsx = 1000(20Px) = 20,000Px

(ii)At equilibrium, Qdx= Qsx


1,20,000-20,000Px= 20,000Px
Px= 3
Putting value of Px as 3
Qmdx= 1,20,000-20,000*3= 60,000 units
Thank you…

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