Chapter-Theory of Production, Cost and Revenue Micro Economics class 11 in english Medium CBSE Notes

Theory of Revenue:

Revenue is defined as the money received from the sale of output. It is the product of price and quantity sold.

Concept of Revenue:

Total Revenue (TR) - Total revenue refers to the total amount of money or payment received by a firm from the sale of its output.

It is expressed as -

  TR = Q * P

Where,

 Q = quantity sold

 P = per unit price

Average Revenue (AR) - Average revenue is the per unit revenue received. 

It is expressed as:

  AR =TR / Q

Where,

 TR = total revenue

 Q = quantity sold.

Marginal Revenue (MR) - It is the addition made to the total revenue by producing one more unit of a commodity. It can be referred as a change in total revenue due to an additional unit.

  MR_n = TR_n- TR_n

       OR

 MR = dTR/dQ = change in TR/change in Quantity

Relationship between AR and MR :

Under perfect competition market: -

• Under perfect competition, the price remains constants and hence AR= MR = P.
• Average Revenue curve is also known as the demand curve.

Under imperfect competition market -

• Under imperfect competition price will not be same and hence AR is not equal to MR.
• Here with the increase in output AR falls and MR Falls at a faster rate than AR.

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