Concepts of Revenue

Concepts of Revenue: 

1. Revenue 

2. Total Revenue 

3. Average Revenue

4. Marginal Revenue 

5. Profit 

1. Revenue: 

Revenue means the sale receipt of the quantity or output produced in a firm.

2. Total Revenue (TR)

Total revenue (TR) is the value of a firm’s sales. In other words, total revenue refers to the total amount of money that a firm can obtain from the sales of its product. The formula is shown as below:

TR = P x Q

For example, Firm JLQ sells 5000 pair of shoes at the rate of RM50.00. Firm JLQ’s total revenue is

TR = P x Q

      = 50 x 5000

      = RM250 000.00

3. Average Revenue (AR)

Average revenue (AR) is defined as the total revenue per unit output sold. The formula is as shown below:

AR = P

AR = TR/Q

4. Marginal Revenue (MR)

Marginal revenue (MR) refers to the change in total revenue resulting from a one unit increase in quantity sold. Marginal revenue is equal to the change in total revenue divided by the change in output sold. The formula is as shown below:

MR = change in TR / Change in Q

 

5. Profit

Profit is the difference between the purchase price and the costs of bringing to market.

Profit = Total Revenue (TR) – Total Cost (TC)