CONCEPT OF REVENUE-RELATIONSHIP BETWEEN TR,AR AND MR
- CONCEPT OF REVENUE 1
RELATIONSHIP BETWEEN AR,MR AND TR
- DR SHASHI AGGARWAL
- MICRO/MANAGERIAL /CA/CS FOUNDATION BUSINESS ECONOMICS
- MEANING OF REVENUE
- BY SELLING A COMMODITY WHATEVER MONEY A FIRM RECEIVES IS CALLED REVENUE
- DOOLEY : THE REVENUE OF THE FIRM IS ITS SALE RECEIPT OR MONEY RECEIPT
FROM THE SALE OF THE PRODUCT
- CONCEPTS OF REVENUE :
- TOTAL REVENUE (TR)
- MARGINAL REVENUE (MR)
- AVERAGE REVENUE
- THE REVENUE THAT A FIRM GETS BY SELLING A GIVEN QUANTITY OF PRODUCTS IS
CALLED TOTAL REVENUE
- LIKE ONE PEN COST 10 RS AND 10 PENS ARE SOLD
- TOTAL REVENUE=10 X10=100 RS
- DOOLEY,” TOTAL REVENUE IS THE SUM OF ALL SALE RECEIPTS OR INCOME OF FIRM
- MARGINAL REVENUE IS THE CHANGE IN TOTAL REVENUE WHICH RESULT FROM THE
SALE OF ONE MORE OR LESS OF COMMODITY
- FERGUSON,” MARGINAL REVENUE IS THE CHANGE IN THE TOTAL REVENUE WHICH
RESULT FROM THE SALE OF MORE OR ONE UNIT OF OUTPUT
- MR= CHANGE IN TOTAL REVENUE/CHANGE IN QUANTITY SOLD
- = ∆TR/∆Q
- MR = TRN –
TRN-1
- TOTAL REVENUE IS 100 WHEN 10 UNITS ARE SOLD
- WHEN ONE UNIT SOLD THEN TR =110
- MR=110=100=10,== ∆TR/∆Q =10/1=10
- AVERAGE REVENUE
- AVERAGE REVENUE MEANS REVENUE
PER UNIT
- AR= TR/Q
- =1000/10= 10 RS PER UNIT
- AR MEANS THE RATE AT WHICH THE OUTPUT IS SOLD AND THAT IS THE PRICE
- MCCONNEL ,” AVERAGE REVENUE IS THE PER UNIT REVENUE RECEIVED FROM THE
SALE OF COMMODITY
- AR= TR/Q=PQ/Q=P
- RELATIONSHIP BETWEEN AR AND MR
- SHAPE OF TR,AR AND MR
- D
- RELATIONSHIP BETWEEN WHEN AR IS NOT CONSTANT
- THE RELATIONSHIP BETWEEN TR,AR AND MR
- RELATIONSHIP
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjE0iH3LyUl0xOV8l7ZJIfLBIRb9H9HQI_ZeGQxrGOcrfAr3O1JGM2TTsY__UZpTT5IMD_Cbtjx3iXIje_Qcssl4DMbKZ06p7LrW1J-eu3yqdPoariFBrETH7K38R0q6FpVbF5NIdV4e83N/s1600/AR3.png)
- IF
- AR AND MR DECLINES,TR INCREASES AT DECREASING RATE UP TO 6 TH UNIT
- MR CAN BE POSITIVE,ZERO OR NEGATIVE BUT AR CAN NOT BE NEGATIVE
- WHEN MR=0 THEN TR IS CONSTANT AND MAXIMUM
- IF TR STARTS DECLINING MR IS NEGATIVE
- DIAGRAMMATIC RELATIONSHIP
- AT B POINT TR IS CONSTANT AND MAXIMUM AND MR IS ZERO AFTER THAT IT BECOMES NEGATIVE AND TR
STARTS DECLINING
- RELATION BETWEEN TR,AR AND MR
- BOTH AR AND MR CALCULATED FROM TOTAL REVENUE
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTCL9fsJ9pmQw7O8dG9imtl7L7sLzLTsLDyaPbkCTm75Tn8NrlqrR9dy-N0xko7p-dE_y8ZsiC4C78ZuTwa28pkhiEpNwYISo1FSwFFwwUhTfs4UjmWLav6GrzZXm1PPDnbB_M3-l58VKC/s1600/AR6.png)
- RELATIONSHIP BETWEEN AR AND MR
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3tySqmYA96Lmf7-WPgIzHA-JEuTUw74khiUkR-arPjEHc7IQ5lhTDexkXe0ojwZsiDVxoEnJKgYK0X3Sh6Fws9a-OSQXtuR-hwsNps9Z3KeRTB6dRjHy5uzxgW8uyDXX_lGt5UlzZjPXB/s1600/AR1.png)
- SHAPE OF TR,AR AND MR
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFAgoIRCBhX7ToG8_tE0WEFIuAoGkeQFx31svM7lqKJdwjmrgiO2wyFetYtpEqKTfPIzKTqrRJZdPzWxjY2GPQWa3RqQ7teEuY8Q3ZPuyZZCFIQC-YmPRi_EDm6XtVwzAy3GjdS9jkaX7t/s1600/AR2.png)
- IF BOTH AVERAGE AND MARGINAL
REVENUE CURVES ARE STRAIGHT LINES
- D
- IF BOTH AR AND MR ARE CONVEX
- MR REVENUE CURVE WILL BE NEARER TO OY AXIS THAN AVERAGE REVENUE AND AB
IS LESS THAN BC
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinY40IoMg1lTqw9cxevjElLwxHYvEoG49Buzb8S9zLJtPxXZh_IYrf92UcpWQv08fuvP9Q1C8lWtq-6hb5xS0PkGa12RGJjL_tbHFlVYECga5SE_bYadEecS1Sa782fMrIZYJ-L5NHFDnn/s1600/AR8.png)
- IF BOTH AR AND MR ARE CONCAVE
- IN THIS CURVE MARGINAL REVENUE CURVE WILL BE INTERSECT ANY
PERPENDICULAR DRAWN FROM AR CURVE TO OY AXIS AT A POINT FARTHER AWAY FROM
TH MID POINT
- AB IS GREATER THAN BC
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgi9OyNq2w3p88NH2Vm9qqYp_0dUF6dV4LMrCG2osUKnkCFEpJbZYRL5gBvYBrL6ZooyH4J-AIiJBZmEjK-SJ3CzbxUsKsluNc21ZkgUoPnIg7olC3KNVksxn1VbRZ_BxD3JVYDPg6Q824L/s320/AR9.png)
- RELATION OF AVERAGE REVENUE AND MARGINAL REVENUE AND ELASTICITY OF
DEMAND
- IN CASE OF MONOPOLY AR AND MR CURVE SLOPE DOWNWARD
- AT DIFFERENT POINTS OF THE AVERAGE REVENUE CURVE ELASTICITY OF DEMAND
IS DIFFERENT
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgVth3j-lTajb_J0pONbaC7s3UtVM97FsR7olFKZOyMTtCSvgxi4WKh-2CsUOfLEF2JL1Uuj3-WHTQQo-a2RuoLoA0_Yngddeyt7W-HPqlfgfOEgZCId2nvpp3oPRYno1jQPURPqriWC2hy/s1600/AR10.png)
- IMPLICATION
- BEFORE POINT Q,PRICE ELASTICITY OF DEMAND OF THE AVERAGE REVENUE CURVE
IS GREATER THAN UNITY THEN THE FIRM SHOULD FIX LOW PRICE PER UNIT OF THE
OUTPUT
- AT POINT ELASTICITY =1MR=ZERO
- IF THE FIRM CHANGES ITS PRICE ,THERE WILL BE NO CHANGE IN THE PRICE
- FIRM WILL EARN NO PROFIT BY MAKING CHANGES IN ITS PRICE
- AFTER POINT Q,PRICE ELASTICITY IS LESS THAN 1.MR IS NEGATIVE
- IN THIS SITUATION FIRM EARNS HIGHER PROFIT ONLY IF FIXES HIGHER PRICE
PER UNIT
- MR CAN BE POSITIVE,ZERO AND NEGATIVE BUT AR IS POSITIVE
- WHEN MR IS POSITIVE,AVERAGE REVENUE IS MORE BUT WHEN MARGINAL REVENUE
IS NEGATIVE AV BEGINS TO FALL
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