Types/Kinds of Revenue:
We have discussed earlier the
various types of
costs of a firm. Now the discussion will centre round the
various types of revenue of a firm.
Definition
of Revenue:
By 'revenue' of a firm is
meant the total sale proceeds or the total receipts of a firm
from the sale of the output.
The various kinds of revenue will
be discussed here under three heads:
(i) Total Revenue, (ii) Marginal
Revenue, (iii) Average Revenue.
(i) Total
Revenue (TR):
Definition:
By 'total revenue' of
a firm is meant the total amount of sale proceeds or the total
receipts of the firm.
Example:
If a firm producing cloth sells one
hundred meters of cloth in the market at $4 per meter, the sale
proceeds or the receipts of the firm win be $400. This total
sale proceed which a firm has received by selling 100 meters of
cloth is called its total revenue. The total revenue varies with
the sales of a firm.
Formula:
Total Revenue =
Price x Quantity Sold
TR = P.q
Here:
P means price.
q means quantity.
TR means total
revenue.
TR = 4 x 100
TR = $400
(ii)
Marginal Revenue (MR):
Definition:
Marginal revenue is the
addition made to the total revenue by a one unit increase in the
volume of sales by the firm in the market. It can also called as the
net revenue earned by selling on additional unit
of output.
Example:
For example, if a firm sells 100 meters of cloth at
$4 per meters, the total revenue of the firm is $400. If it
increases the volume of sale from 100 meters to 101 meters,
i.e., by one meter, the total revenue of the firm goes up to
$404. The addition of $4 which has taken place in the total
revenue by a one unit increase in the rate of sales per period
of time is known as marginal revenue. MR can be expressed as
follows.
Formula:
MR = ΔTR
Δq
(iii)
Average Revenue (ARABI):
Definition:
Average revenue is revenue earned
per unit of output. Average revenue is obtained by dividing the
total revenue by the number of units sold in the market.
Example:
For example, a firm sells 200 meters
of cloth for $600, then the average, revenue will be 600 / 200 =
$3 only. Average revenue represents the average sale price per
unit of the commodity. Average revenue curve can also be called
demand curve.
Formula:
Average Revenue = Total Revenue
Total Output Sold
AR = TR
q
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