Total Revenue: The total amount of money which a seller receives by selling given units of a commodity is called total revenue. It can be obtained by two ways:
- By summing up the marginal revenue receive by selling different units of commodity. TR = MR1+ MR2 + MR3 + MR4…… + MRn = ΣMR
- By multiplying average revenue (price) by number of units of commodity sold. TR = AR (P) × Q
E.g. suppose by selling 10 units of a commodity money received by seller is 50.Then his total revenue is Rs 50.
Average Revenue: It is the revenue per unit of a commodity sold. This can be obtained by dividing total revenue by number of units of commodity sold.
AR = TR /Q
E.g. suppose by selling 10 units of a commodity money received by seller is 50. Then AR will be as follows-
Marginal Revenue - The change in total revenue by selling an additional unit of a commodity is called marginal revenue.
It can be obtained by two formula-
MR =TRn - TRn-1 or MR = ΔTR / ΔQ
E.g. suppose by selling 10 units of a commodity money received by seller is Rs 50 and by selling 11 units, he receives Rs 54 .Then MR will be as follows-
Relationship between marginal revenue and total revenue.
• When marginal revenue is positive, total revenue increases.
• When marginal revenue is zero, total revenue is maximum.
• When marginal revenue is negative, total revenue decreases.
