Revenue

We know that every firm produces output to earn profit. Profit is the difference between revenue and cost. The firm sells output in the market. The receipts so obtained from the sale of output are the income or revenue of the firm. The firm compares revenue with the cost of production of the said output. This enables the firm to know the amount of profit earned in the business. Therefore the analysis of revenue and cost is important in price-output policy of a firm.

Total Revenue

Total revenue refers to the whole income earned by the firm from the sale of a given output in the market. It is equal to the total expenditure incurred by the buyers to purchase the said output of the firm. Total revenue can be calculated by multiplying the price per unit of output with thee total quantity of output sold in the market.

Average Revenue

Marginal revenue is the addition made to the total revenue by selling an additional unit of the product. For example, by selling 20 units, the firm gets Rs. 100 as total revenue and by selling 21 units of a product, the total received rises to Rs. 105. Then marginal revenue is Rs. 105-Rs. 100 = Rs. 5. Thus marginal revenue the addition made to total revenue by selling ‘n’ units product of ‘n-1’ units where n is any given number.

MR = TR_n – TR_n-1

              TR = Total RevenueWhere MR = Marginal Revenue

                N = Any real number