Revenue refers to the amount a firm receives from the sale of a given quantity of a commodity in the market. Here are revenue class 11 notes.
Topics Discussed
Types of Revenue
There are three types of revenue:
1) Total Revenue
2) Average Revenue
3) Marginal Revenue
Total Revenue
Total revenue refers to the total receipts from the sale of a given quantity of a commodity.
TR = P*Q
Average Revenue
Average Revenue refers to revenue per unit of output sold.
AR = TR/Q
Note: AR and price are the same thing.
TR = P*Q
AR = TR/Q
AR = P*Q/Q
AR = P
Marginal Revenue
It is the additional revenue generated from the sale of an additional unit of output.
MR = (delta)TR/ (delta)Q
or
MR = TRn – TR(n-1)
When the Price Remains Constant
Relationship between AR and MR
| Units | Price | TR | AR | MR |
| 1 | 5 | 5 | 5 | 5 |
| 2 | 5 | 10 | 5 | 5 |
| 3 | 5 | 15 | 5 | 5 |
| 4 | 5 | 20 | 5 | 5 |
| 5 | 5 | 25 | 5 | 5 |
- Under perfect competition, no firm is in a position to influence the market price.
- A firm can see any quantity of output only at the same price.
- As a result, Revenue from every additional unit (MR) is equal to AR.
- Hence, both AR and MR coincide in a horizontal straight line parallel to the x-axis.
Relationship between TR and MR
| Units | Price | TR | MR |
| 1 | 5 | 5 | 5 |
| 2 | 5 | 10 | 5 |
| 3 | 5 | 15 | 5 |
| 4 | 5 | 20 | 5 |
| 5 | 5 | 25 | 5 |
- Under perfect competition, no firm is in a position to influence the market price.
- A firm can sell any quantity of output only at the same price.
- As a result, the MR curve is a horizontal straight line parallel to the x-axis.
- Since MR remains constant, the TR curve also rises at a constant rate.
- As a result, the TR curve is a positively sloped straight line and starts from the origin.
When Price Falls with Rise in Output
Relationship between AR and MR
| Units | Price | TR | MR | AR |
| 1 | 5 | 5 | 5 | 5 |
| 2 | 4 | 8 | 3 | 4 |
| 3 | 3 | 9 | 1 | 3 |
| 4 | 2 | 8 | -1 | 2 |
| 5 | 1 | 5 | -3 | 1 |
- When a firm increases its sales volume by decreasing the price, AR falls with an increase in sales.
- Also, revenue from every additional unit (MR) will be less than AR.
- As a result, both AR and MR fall and slope downwards.
- However, MR falls at a rate that is twice the rate of fall in AR. As a result, the MR curve is steeper than the AR curve.
Cost Notes Class 11 Microeconomics
Relationship between TR and MR
| Units | Price | TR | MR |
| 1 | 5 | 5 | 5 |
| 2 | 4 | 8 | 3 |
| 3 | 3 | 9 | 1 |
| 4 | 2 | 8 | -1 |
| 5 | 1 | 5 | -3 |
- As long as MR is positive, TR increases.
- When MR is zero, TR is at its maximum point.
- When MR is negative, TR starts falling.
AR and Price are the Same
AR is equal to per-unit sale receipts and price is always per unit. Since sellers receive revenue according to price, price and AR are the same thing.
TR=Quantity*Price (1)
AR=TR/Quantity (2)
Putting the value of TR from (1) in (2), we get;
AR=Quantity*Price/Quantity
AR=Price
AR Curve and Demand Curve are the Same
A buyer’s demand curve graphically represents the quantities demanded by a buyer at various prices.
In other words, it shows the various levels of average revenue at which different quantities of the good are sold by the seller. Therefore, in economics, it is customary to refer AR curve as the Demand Curve of a firm.