Revenues Formulas & Definitions:
Total Revenue (TR) is the total value of sales earnings a firm receives in a given time period.
Total Revenue = Price x Quantity
Average Revenue (AR) is the amount of revenue earned by the firm per each unit of output (good/service) sold.
Average Revenue = Total Revenue / Quantity
Marginal Revenue (MR) is defined as the change (increase) in total revenue by producing one additional unit of output.
Marginal Revenue = Change in Revenue / Change in Quantity
Revenues Examples & Explanation:
If you own a durian fruit store (smelly or not?) and sell $500 worth of durians, then your total revenue (TR) is $500. If you sold 10 durians in total, then your average revenue (AR) is $500/10 = $50 per durian. If you will earn $30 for selling the 11th durian, then your marginal revenue (MR) is $30. Note that revenue structures in Economic theory tend to vary depending on a firm’s market structure. In a perfectly competitive market, your marginal revenue equals to your average revenue as the price you sell your good at stays constant as a price taker. However, this is not the case in any other market structure where marginal revenue is twice as steep as average revenue (assuming your revenue curve is linear).
Revenues Notes with Diagrams/Graphs:
Want a closer look? Download these revenues notes.
The left video explains different types of revenue curves, the right explains the relationship between PED and Total Revenue.