CONCEPT OF REVENUE

PRESENTED BY

RAJA RAM SHARMA

MEANING OF REVENUE

Revenue of a firm is its money receipts from the sale of its product in a given period.

Revenue = Price X Product

Revenue = Cost + Profit

Profit = Revenue – Cost

CONCEPT OF REVENUE

Total Revenue – Sum total of money received of a firm from the sale of a given output.

Marginal Revenue – Change in total revenue by selling of one more unit of a commodity.

Average Revenue – Revenue per unit of output is called average revenue.

TR, MR AND AR SCHEDULE

Price Units of output

TR AR MR

10 1 10 10 10

9 2 18 9 8

8 3 27 8 6

7 4 28 7 4

6 5 30 6 2

5 6 30 5 0

4 7 28 4 -2

3 8 24 3 -4

GRAPHICAL PRESENTATION

0 1 2 3 4 5 6 7 8 9

-10

-5

0

5

10

15

20

25

30

35

RELATIONSHIP BETWEEN MR AND TR Relation between MR and TR

MR can be zero or even negative, but only when price is declining as under monopoly or monopolistic competition.

TR stops increasing when MR = 0, so that TR is maximum when MR = 0.

TR starts declining when MR is negative.

When MR is declining, less and less is added to TR for every additional unit sold. Accordingly TR increases only at a diminishing rate.

RELATIONSHIP BETWEEN TR & MR (WHEN MORE CAN BE SOLD AT SAME PRICE)

Units sold TR AR MR

1 10 10 10

2 20 10 10

3 30 10 10

4 40 10 10

5 50 10 10

0 1 2 3 4 5 60

10

20

30

40

50

60

UNITS SOLD

TR

/AR

/MR

RELATIONSHIP BETWEEN TR & MR

(i) TR increases at a constant rate since price is constant and MR is also constant. This implies that TR increases at constant rate. Consequently TR curve is upward rising straight line.

(ii) AR = Price = MR are parallel to X-axis.

(iii) Since TR increases at a constant rate, MR is also constant throughout.

DEMAND CURVE IN DIFFERENT MARKETS

0 1 2 3 4 5 6 7 80

5

10

15

20

25

UNITS SOLD

REV

EN

UE