Meaning:
In economics, revenue refers to the total income generated by a firm from selling goods or services over a specific period. The sale proceed that a firm gets from the sale of its product in a given period is called revenue. In other words revenue is the market value obtained by a firm from the sale of goods and services. It is a money value of the production sold by a firm in the market. There are three main types of revenue that is
Types of Revenue:
- Total revenue
- Average revenue
- Marginal revenue
- Total revenue: It refers to the total amount of income received by the firm from selling a given amount of its output. it is calculated by multiplying the total output by the price at which the product is sold. The total amount of income a firm receives from selling its goods or services. It is calculated as the product of the price per unit and the quantity sold.
Formula: Total Revenue (TR)=Price (P)×Quantity Sold (Q)
Let us discuss with an example. Suppose a bike company sells 200 bikes per month. The price of per bike is 5,00,000. In this case , the total revenue will be TR=PXQ, i.e. 5,00,000×200=10,00,00,000.
- Average revenue: It is the revenue earned by per unit of products sold. it is calculated by dividing total revenue by the number of unit sold. The revenue earned per unit of production sold. In other words Average revenue means the average sale proceeds. It is calculated by dividing the total revenue by the quantity sold.
Formula: Average Revenue (AR)=Quantity Sold (Q)Total Revenue (TR) or AR=TR/Q . Example. Suppose a firm sells 1000 bikes in a month and earns a total revenue of Rs. 4,00,00,000. In this case the average revenue will be 4,00,00,000/1000=Rs. 40,000. It is the price of the commodity per unit.
- Marginal revenue: It is addition to the total revenue which results from the sale of one additional unit of output. The additional revenue that a firm earns by selling one more unit of output. It is the change in total revenue resulting from the sale of an additional unit.
Formula: Marginal Revenue (MR)=ΔQuantity (Q)ΔTotal Revenue (TR). For example. Suppose a firm earns a total revenue of Rs. 40,00,000 by selling 100 units of a commodity. In this case, the average revenue is TR/Q that is 40,00,000/100= 40,000. Suppose the firm sells one more unit , that is 100+1=101 units, and earns Rs. 40,38,000. Here the marginal revenue is Rs. is 40,38,000- 40,00,000= 38,000 Hence Marginal revenue is the revenue derived from the sale of an additional unit.
Conclusion: The profit earned by a firm are calculated with the help of its cost and revenue. both cost curves and revenue curves are necessary for finding the equilibrium of the firm.
