Total Revenue and Average Revenue

The term ‘revenue‘ means receipts that a firm gets from the sale of goods and services in a given period of time. Revenue is different from profit. Revenue is the receipts that the firm gets. However, profit means revenue minus costs of generating that revenue.

Total Revenue is the total of all the receipts that a firm gets in a given period of time. Total revenue can be calculated by the formula :

Total Revenue(TR) = Price (P) x Quantity(Q)

Average Revenue is the revenue which is received on average. It is the money received per unit of sales. It can be calculated using the formula:

Average Revenue(AR) = Total Revenue(TR) / Quantity(Q)

If a particular firm produces 10 units of output, and it received $30 by selling those goods, the average revenue of the firm is:

AR = TR/Q

AR = $30/10

Average Revenue = $3

We must note here that, Average Revenue, most of the time is Price(P).

If another firm produces 10 units of output and it sells all those goods for $4 each. We can calculate total revenue by:

TR = AR x Q

TR = $4 x 10

TR = $40.

Next topic: Profit maximisation as a goal of business organisations

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