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Revenue
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Revenue
1. Meaning:
Sale receipt is called revenue. In simple words, by selling a commodity whatever money a firm received
is called revenue. It is also called sale proceeding.
2. Example:
Suppose you are running a factory producing ice cream. You produce 100 ice creams daily. By selling
these ice creams you get Rs. 1000. In economics, this amount is called revenue.
3. Definition:
According to DOOLEY,’’ The revenue of a firm is its sale receipt or money receipt from the sale of a
product.
4.
REVENUE AND PROFIT ARE DIFFERENT CONCEPT
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The concept of revenue is different from the concept of profit.
Whole revenue is not profit
Profit may be a part of revenue
If total revenue > total cost then profit is a part of revenue otherwise not.
The following equation shows this different.
 It means profit is the part of revenue. Thus whole revenue is a not profit.
 Rise in output doesn’t mean rise in revenue.
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5. DIFFERENT SITUATION OF REVENUE AND COST
6. CONCEPT OF REVENUE;
 There are 3 concepts of revenue.
 Total revue
 Marginal revenue
 Average revenue
TOTAL REVENUE:
 Total revenue is the total money receipt by the seller after sale of particular level of output sold
 Total revenue is calculating by using following methods:
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 EXAMPLE: If 100 ice creams slabs are sold at the rate of 50 per slab, then TOTAL
REVENUE of firm is 5000 ( 100 x 50= 5000 )
MARGINAL REVENUE
 Meaning: MR is the change in total revenue which results from the sale of one more (or
one less) units of a commodity.
 It is calculate as ,
Change in total revenue is divided by change in quantity of the product sold.
 Special point regarding marginal revenue: MR is additional revenue from the sale of an
additional unit of output; sum total of MAGINAL REVENUE of all the units of a
commodity should be equal to TOTAL REVENUE.
TOTAL REVENUE = SUM TOTAL OF MARGINAL REVENUE
AVERAGE REVENUE
 Meaning: Per product revenue is called average revenue.
 It is calculate as
 EXAMPLE: Suppose TOTAL REVENUE is 100 and OUTPUT sold 4 the AVERAGE REVENUE
is 25.
 SPECIAL POINT REGARDING AVERAGE REVENUE: AVERAGE REVENUE is the per unit
revenue received from the sale of a commodity. It is the same as price of the
commodity.
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Which concept of revenue is called price
AR is also known as price……proof
AR and MR relationship
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AR rise MR also rise but rising speed of MR is more than AR therefore MR>AR
AR decrease MR also decrease but decreasing speed of MR is more than AR therefore AR>MR.
AR constant MR also constant so in this case AR=MR
AR always positive whereas MR may be positive, zero or negative.
If MR decrease, zero or negative then AR always decrease.
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MR and TR relationship
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Sum of MR is called TR
If MR increase then TR increase with increasing rate.
If MR decrease then TR increasing with decreasing rate.
If MR constant Then TR increasing with constant rate (under perfect market)
If MR is zero then TR maximum.
If MR is negative then TR decrease.
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Demand curve
 The curve showing the relationship between price of the good and its demand.
 It is horizontal straight line parallel to Ox-axis
 Under monopoly it has negative slop from left to right which means monopolistic may increase
demand of the good in the market by reducing price of good. Under monopoly less elastic
demand curve is created.
 Under monopolistic competition, demand curve has negative slope from left to right because
under monopolistic competition demand can be increase by reducing price. Under monopolistic
more elastic demand curve is created.
Relationship between TR, MR AND AR.
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Revenue curves under different market
 Under perfect market:
 Under perfect market firm is a price taker.
 It can sell any number of units at the prevailing rate which is fixed by industry.
 If the firm tries to sell at a high price than market rate, it will lose the customer.
 Accordingly constant price means constant AR of the firm. Its marginal revenue is also
constant and equal to AVERAGE REVENUE.
 REVENUE CURVE UNDER MONOPOLY:
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Under monopoly, the average revenue curve and marginal revenue curve slope
downwards from left to right.
It means that if a monopolist desire to sell more, he has to reduce price of the
product. He is the king of the market; he can fix whatever price he wishes to. But
he can sell more only if he lowers the price of his product.
In the above curve AR slops downward. It shows that monopoly firm must lower price (AR) of the product in
case it wants to sell more of it. If AR falls, MR also falls, and in such a situation MR< AR.
 REVENUE CURVE UNDER MONOPOLISTIC MARKET:
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Revenue curve under monopolistic market Like under monopoly, AR curve for the firm
under monopolistic market is also slop downward. However, AR is more elastic.
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5.5
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