Concept of Revenue – Total, Average And Marginal Revenue - SS2 Economics Lesson Note

Revenue is the income a firm earns from selling its goods or services. There are three key concepts of revenue: total revenue, average revenue, and marginal revenue.

• Total Revenue (TR): This is the total amount of money a firm earns from selling its products. It is calculated by multiplying the price of a product by the quantity sold. Mathematically, 

TR = P x Q

Where P = Price of products,  Q= Quantity sold

 

• Average Revenue (AR): This is the revenue a firm earns per unit of output. It is calculated by dividing the total revenue by the quantity of output. Mathematically, 

AR = TR/Q

Where TR = Total Quantity,   Q= Quantity sold

 

• Marginal Revenue (MR): This is the additional revenue a firm earns from selling one more unit of output. It is calculated by dividing the change in total revenue by the change in quantity sold. Mathematically, 

MR = TR¹ - TR °/Q¹ - Q°

Where TR¹ - TR ° = change in total revenue,   Q¹ - Q° = change in quantity sold