Concepts of Revenue:
1. Revenue
2. Total Revenue
3. Average Revenue
4. Marginal Revenue
5. Profit
1. Revenue:
Revenue means the sale receipt of the quantity or output produced in a firm.
2. Total Revenue (TR)
Total revenue (TR) is the value of a firm’s sales. In other words, total revenue refers to the total amount of money that a firm can obtain from the sales of its product. The formula is shown as below:
TR = P x Q
For example, Firm JLQ sells 5000 pair of shoes at the rate of RM50.00. Firm JLQ’s total revenue is
TR = P x Q
= 50 x 5000
= RM250 000.00
3. Average Revenue (AR)
Average revenue (AR) is defined as the total revenue per unit output sold. The formula is as shown below:
AR = P
AR = TR/Q
4. Marginal Revenue (MR)
Marginal revenue (MR) refers to the change in total revenue resulting from a one unit increase in quantity sold. Marginal revenue is equal to the change in total revenue divided by the change in output sold. The formula is as shown below:
MR = change in TR / Change in Q
5. Profit
Profit is the difference between the purchase price and the costs of bringing to market.
Profit = Total Revenue (TR) – Total Cost (TC)