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1. TR
TR
Q
Presentation By:
Manoj Kumar Sunuwar
NIMS College
Lagankhel, Lalitpur
Nepal

2.  General concept of total revenue,
average revenue and marginal revenue.
 Derivation of TR, AR and MR
 Derivation of TR, AR and MR under
perfect competitive and monopoly
market structure.
 Relationship between TR, AR and MR.

3.  Total amount of money value received by a firm or
an industry by selling the goods and services is
known as the revenue.
 For example if a firm produce 100 units of
commodity per day and sells it at Rs.20 per unit
then its total revenue is Rs. 2000 per day.
 The revenue can be classified into three category
such as ;
a. Total Revenue (TR).
b. Average Revenue (AR).
c. Marginal Revenue (MR).
 Each curve have different characteristics for
different market structure.

4.  Here we discuss characteristics of TR, AR and MR
under perfect competitive and monopoly market
structure.
GENERAL CONCEPT OF TR, AR AND MR
A. Total Revenue (TR):
 Total sum of money value received from the
sales of various quantities of output of product
produced during a given period of time at certain
price level is known as total revenue of a firm or
an industry for that time period.
 It can be obtained by multiplying total output
sold (Q) by the corresponding price (P).
i.e. TR = P × Q

5. B. Average Revenue (AR):
 Per unit revenue of a product is known as average
revenue. We obtain AR by dividing (TR) by the
corresponding quantity sold (Q).
i.e.
C. Marginal Revenue (MR):
 An additional amount of money received from the
sells of one additional unit of a product or output.
i.e.

6.  Where, TRn is he total revenue obtained from
the sales of nth unit of output and TRn-1 is the
total revenue obtained from the sales of (n-1) th
unit of output.
 In other words, marginal revenue is the change
in total revenue due to change in the quantity
sold on the market by one unit.
i.e.
 Where, Δ = change
Δ TR = change in total revenue
Δ Q = change in quantity sold in the market.

7. Revenue Curves Under Perfect Competition
Market
 Perfect competition is a market structure in
which a large number of sellers sell the
homogeneous product to a large number of
buyers.
 There are large number of buyers and sellers so
that no one individual buyer or seller can
influence the smooth functioning of the market.
 That means neither individual seller nor buyer
can change the price of the product. In this
structure of the market firms are the price taker
not price makers.

8.  In perfectly competitive market a firm or an
industry sell its output at given price.
 The price is determined by the market , i.e. the
intersection of market demand and market
supply curves .
 The total, average and marginal revenue of a
competitive firm are illustrated as follows;
a. Total Revenue (TR):
 Total amount of money value received by a
producer by selling various quantities of the
product in the market at constant price is
known as TR in case of perfectly competitive
market.

9.  TR is obtained by multiplying amount of output
sold by the given price determined in the market
by intersection of market demand and market
supply curve.
i.e. TR = Q × P
Where, Q= amount of product sale
P= Market Price which is constant.
 TR increases at the same rate because, every
additional unit of the commodity is sold at the
same price. In this type of market firms are
price taker not price maker.
 It can be explained with the help of following
table and graph.

10. Total Revenue Under Perfect Competition
Units of Output (Q) Per Unit Price (P) Total Revenue (TR)
0 10 0
1 10 10
2 10 20
3 10 30
4 10 40
5 10 50
• In above table total revenue (TR ) is obtained by
multiplying output (Q) and Price (P). When output is
zero TR also zero. TR is Rs. 10, 20, 30, 40 and 50
for the 1, 2, 3, 4 and 5 units of sale respectively,
where price is constant at Rs. 10.

11.  In the above table as increase in sell of output total revenue
also increasing, but the rate of increase in total revenue is
constant. TR TR
 Graphically, 50
40
30
20
10
O Output
1 2 3 4 5 6

12. b. Average Revenue (AR):
 Per unit revenue obtained by a seller by selling
product at market price in the market in certain time
period is known as AR for that time period of that
seller or producer.
 It is calculated by dividing total revenue (TR) by
corresponding quantity sold (Q) in the market at
market price (P).
i.e. AR = TR/Q
i.e. AR =( P×Q)/Q
i.e. AR = P
 Therefore, another name of AR is the average market
price of the product. Since, price is constant in perfect
competition market and hence, AR is also constant .

13.  It can be explained with the help of following
table;
Average Revenue Under Perfect Competition
Units of Per Unit Price Total Revenue Average Revenue
Output (Q) (P) (TR) (AR) = TR/Q
0 10 0 -
1 10 10 10
2 10 20 10
3 10 30 10
4 10 40 10
5 10 50 10

14.  In the above table as increase in sells of output of
the product Average Revenue (AR) remains
constant i.e. Rs. 10 for first unit to fifth unit of
output.
 Above information shows that AR is constant and
equal to the price for all level of output.
 In the following figure average revenue curve is
found by plotting the combination of points of the
quantity sold on the horizontal axis and
corresponding AR on the vertical axis.
 AR curve is a horizontal straight line at the
different level of output sold at given price. It
shows that AR is constant and equal to the price
for all level of output, i.e. AR = P.

15.  Graphically,
AR
50
40
30
20
10 AR
O Output
1 2 3 4 5 6

16. c. Marginal Revenue (MR):
 Marginal revenue is the change in total
revenue in response to the change in quantity
sold. It is calculated by dividing the change in
total revenue (ΔTR) by the change in quantity
sold (ΔQ).
 In case of perfectly competitive market
marginal revenue (MR) remains constant and
equal to the market price for all level of
output sold, i.e. MR = P.
 It can be explained with the help of following
table and graph.

17. Marginal Revenue in Perfect Competition
Units of Per Unit Price Total Revenue Average Marginal
Output (Q) (P) (TR) = P × Q Revenue Revenue
(AR) = TR/Q (MR) = ΔTR/ΔQ
0 10 0 - -
1 10 10 10 10
2 10 20 10 10
3 10 30 10 10
4 10 40 10 10
5 10 50 10 10
•In the above table as increase in output sold at
market price TR increases at constant rate . But MR
remains constant i.e. Rs. 10. which is equal to price.
•Form above table we conclude that Price, AR and
MR are same i.e. Rs. 10. that means P = AR = MR.

18.  Graphically,
MR
50
40
30
20
10 MR
O Output
1 2 3 4 5 6

19.  In the above figure MR is the slope of the TR. The
MR curve is found by plotting the MR on y-axis and
quantity sold on x-axis.
 The MR curve is also horizontal to the x-axis as of
the AR. It shows that AR and MR are overlapped
and equal to the price in perfectly competitive
market.
Relationship between TR, AR and MR under perfectly
competitive market
 TR increases at the rate of AR or MR for all level of
sales.
AR and MR are equal and constant for all level of
sales.
AR and MR both are equal to the price.