accounts
economics
business studies
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CONTACT: 72067-81000, 86079-81934
, CONCEPT OF REVENUE
Que: Define revenue.
Ans: By selling a given output of a commodity whatever money a firm receive is called its
revenue.
Do note: The concept of revenue is different from the concept of profit. Profit refers to the
excess of revenue from sale of a given output of a commodity over cost of producing it. It is
calculated as a difference between revenue and cost. Thus,
Profit = Revenue – Cost
Que: Explain various aspects of revenue.
Ans: There are following three aspects of revenue:
1) Total revenue: It refers to the total money receipts of a firm from the sale of its total output
of a commodity. It can be calculated by using following formulas:
TR = ∑MR
Or
TR = AR × Q
Or
TR = P × Q
2) Marginal revenue: It refers to the change in total revenue when one more unit of output of a
commodity is sold. It can be calculated by using following formula:
MRnth = TRn – TRn-1
3) Average revenue: It refers to the revenue per unit of output sold of a commodity. It can be
calculated by using following formula:
AR = TR ÷ Q
Here, TR = Total revenue, MR = Marginal revenue, AR = Average revenue, ∑MR = Sum total of
marginal revenues, Q = Quantity of output, P = Price, MRnth = Marginal revenue of the nth unit,
TRn = Total revenue of n units, TRn-1 = Total revenue of n-1 units
Do note: Some important points regarding marginal revenue (MR)
1) When change in units sold is more than one, then MR can be calculated as below:
MR = Change in Total Revenue_ = ΔTR
Change in units of Output ΔQ
2) MR represents the slope of TR.
Que: Prove that average revenue (AR) = price (P).
Ans: Yes, it is true that average revenue (AR) = price (P). This can be explained as below:
economics
business studies
ADDRESS: SHOP NO. 15, 1ST & 2ND FLOOR, MODEL TOWN, KARNAL
CONTACT: 72067-81000, 86079-81934
, CONCEPT OF REVENUE
Que: Define revenue.
Ans: By selling a given output of a commodity whatever money a firm receive is called its
revenue.
Do note: The concept of revenue is different from the concept of profit. Profit refers to the
excess of revenue from sale of a given output of a commodity over cost of producing it. It is
calculated as a difference between revenue and cost. Thus,
Profit = Revenue – Cost
Que: Explain various aspects of revenue.
Ans: There are following three aspects of revenue:
1) Total revenue: It refers to the total money receipts of a firm from the sale of its total output
of a commodity. It can be calculated by using following formulas:
TR = ∑MR
Or
TR = AR × Q
Or
TR = P × Q
2) Marginal revenue: It refers to the change in total revenue when one more unit of output of a
commodity is sold. It can be calculated by using following formula:
MRnth = TRn – TRn-1
3) Average revenue: It refers to the revenue per unit of output sold of a commodity. It can be
calculated by using following formula:
AR = TR ÷ Q
Here, TR = Total revenue, MR = Marginal revenue, AR = Average revenue, ∑MR = Sum total of
marginal revenues, Q = Quantity of output, P = Price, MRnth = Marginal revenue of the nth unit,
TRn = Total revenue of n units, TRn-1 = Total revenue of n-1 units
Do note: Some important points regarding marginal revenue (MR)
1) When change in units sold is more than one, then MR can be calculated as below:
MR = Change in Total Revenue_ = ΔTR
Change in units of Output ΔQ
2) MR represents the slope of TR.
Que: Prove that average revenue (AR) = price (P).
Ans: Yes, it is true that average revenue (AR) = price (P). This can be explained as below:
