(i) Total Revenue: The total revenue is the aggregate revenue received by the seller from the sale of the entire output. It is obtained by multiplying the units sold with the price of the product. It may be stated as follows: TR = p x q where, p is price and q is quantity sold.
(ii) Average Revenue: It refers to the revenue per unit of output sold. It is obtained by dividing the total revenue by the number of units of output sold.
Under perfect competition, AR will be equal to the market price. This is because, in perfect competitive market, the seller sells his product at the same price which is prevailing in the market. If the seller sells at low price, he incurs losses or if he increases the price, he loses customers.)
(iii) Marginal Revenue: The Marginal Revenue is the additional revenue which the firm earns from the sale of additional unit of output. It is obtained as MR = TRn – TRn-1
Under perfect competition, the price ** same and all the firms sell their products at the existing price. As the price ** same, if the number of units sold gets increased, no doubt the Total Revenue increases but the AR and MR remain the same. So, the firm’* demand curve, average revenue curve and its marginal revenue curve all coincide in the same horizontal line.
This can be shown in diagram given below:
In the diagram, TR curve increases with the increase in quantities sold. The Price is equal to AR and MR represented as horizontal line parallel to ‘x’ axis. In this market, price does not change, therefore, there will be no change in AR and MR. Thus, in perfect market, demand curve, AR and MR curves coincide in the same horizontal line.
