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 !