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 :

1. TOTAL REVENUE (TR)
2. MARGINAL REVENUE (MR)
3. AVERAGE REVENUE

• TOTAL REVENUE
• TR= Q X P

1. THE REVENUE THAT A FIRM GETS BY SELLING A GIVEN QUANTITY OF PRODUCTS IS CALLED TOTAL REVENUE
2. LIKE ONE PEN COST 10 RS AND 10 PENS ARE SOLD
3. TOTAL REVENUE=10 X10=100 RS
4. DOOLEY,” TOTAL REVENUE IS THE SUM OF ALL SALE RECEIPTS OR INCOME OF FIRM

• MARGINAL REVENUE

1. MARGINAL REVENUE IS THE CHANGE IN TOTAL REVENUE WHICH RESULT FROM THE SALE OF ONE MORE OR LESS OF COMMODITY
2. FERGUSON,” MARGINAL REVENUE IS THE CHANGE IN THE TOTAL REVENUE WHICH RESULT FROM THE SALE OF MORE OR ONE UNIT OF OUTPUT
3. MR= CHANGE IN TOTAL REVENUE/CHANGE IN QUANTITY SOLD
4. = ∆TR/∆Q
5. MR = TR_N – TR_N-1
6. TOTAL REVENUE IS 100 WHEN 10 UNITS ARE SOLD
7. WHEN ONE UNIT SOLD THEN TR =110
8. MR=110=100=10,== ∆TR/∆Q =10/1=10

• AVERAGE REVENUE
•  AVERAGE REVENUE MEANS REVENUE PER UNIT

1. AR= TR/Q
2. =1000/10= 10 RS PER UNIT
3. AR MEANS THE RATE AT WHICH THE OUTPUT IS SOLD AND THAT IS THE PRICE
4. MCCONNEL ,” AVERAGE REVENUE IS THE PER UNIT REVENUE RECEIVED FROM THE SALE OF COMMODITY
5. AR= TR/Q=PQ/Q=P

• RELATIONSHIP BETWEEN AR AND MR
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• SHAPE OF TR,AR AND MR
• D
  
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• RELATIONSHIP BETWEEN WHEN AR IS NOT CONSTANT
• THE RELATIONSHIP BETWEEN TR,AR AND MR
• RELATIONSHIP
• 

1. IF 
3. AR AND MR DECLINES,TR INCREASES AT DECREASING RATE UP TO 6 TH UNIT
   
   
4. MR CAN BE POSITIVE,ZERO OR NEGATIVE BUT AR CAN NOT BE NEGATIVE
5. WHEN MR=0 THEN TR IS CONSTANT AND MAXIMUM
6. IF TR STARTS DECLINING MR IS NEGATIVE
7. DIAGRAMMATIC RELATIONSHIP
8. 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
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• RELATIONSHIP BETWEEN AR AND MR
• 
• SHAPE OF TR,AR AND MR
• 
• 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
• 

• 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
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• 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
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• 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

1. IF THE FIRM CHANGES ITS PRICE ,THERE WILL BE NO CHANGE IN THE PRICE
2. FIRM WILL EARN NO PROFIT BY MAKING CHANGES IN ITS PRICE
3. AFTER POINT Q,PRICE ELASTICITY IS LESS THAN 1.MR IS NEGATIVE
4. IN THIS SITUATION FIRM EARNS HIGHER PROFIT ONLY IF FIXES HIGHER PRICE PER UNIT
5. MR CAN BE POSITIVE,ZERO AND NEGATIVE BUT AR IS POSITIVE
6. WHEN MR IS POSITIVE,AVERAGE REVENUE IS MORE BUT WHEN MARGINAL REVENUE IS NEGATIVE AV BEGINS TO FALL