Revenue concept

REVENUE

CONCEPT

General concept of total revenue, average revenue and marginal revenue.

Derivation of TR, AR and MR under perfect competitive and monopoly market structure.

Relationship between TR, AR and MR.

WHAT WE LEARN IN THIS CHAPTER ?

A. Total Revenue (TR):

Formula:

B. Average Revenue (AR):

Formula:

C. Marginal Revenue (MR):

Formula:

ILLUSTRATIONQTY 1 2 3 4 5 6 7 8

PRICE 12 11 10 9 8 7 6 5

Output Price TR AR MR

1 12 12 12 -

2 11 22 11 10

3 10 30 3 8

4 9 36 9 6

5 8 40 8 4

6 7 42 7 2

7 6 42 6 0

8 5 40 5 -2

SOLUTION

Total Revenue Under Perfect Competition

Units of Output (Q)

Per Unit Price (P) Total Revenue (TR)

0 10 0

1 10 10

2 10 20

3 10 30

4 10 40

5 10 50

TR

OutputO64 5321

40

TR

20

30

50

10

AVERAGE REVENUE UNDER PERFECT COMPETITION

Units of Output (Q)

Per Unit Price (P)

Total Revenue (TR)

Average Revenue (AR) = TR/Q

0 10 0 -

1 10 10 10

2 10 20 10

3 10 30 10

4 10 40 10

5 10 50 10

• Graphically,AR

OutputO64 5321

40

20

30

50

10 AR

Units of Output (Q)

Per Unit Price (P)

Total Revenue

(TR) = P × Q

Average Revenue

(AR) = TR/Q

Marginal Revenue(MR) = ΔTR/ΔQ

0 10 0 - -

1 10 10 10 10

2 10 20 10 10

3 10 30 10 10

4 10 40 10 10

5 10 50 10 10

Marginal Revenue in Perfect Competition

MR

OutputO64 5321

40

20

30

50

10 MR

Graphically,

Monopoly Market

AR, TR & MR Under Monopoly

RELATIONSHIP BETWEEN AR AND MR CURVES & PRICE ELASTICITY

Quantity

Q

AR

=AR curve

MR curve

What we covered

Conclusion !

THANK YOU !