Q.Define total revenue, average revenue and marginal revenue, and explain the relationship among them.

These three revenue measures describe a firm's earnings in total, per unit, and at the margin, and they are arithmetically linked.

Total Revenue (TR) is the entire receipt from selling a given output, $TR = P \times Q$. Average Revenue (AR) is revenue per unit, $AR = TR/Q$, and since $TR = P \times Q$, average revenue always equals the price — which is why the demand curve is the AR curve. Marginal Revenue (MR) is the addition to total revenue from selling one more unit, $MR = \Delta TR / \Delta Q = TR_n - TR_{n-1}$.

Their relationship:

• TR is obtained by cumulating MR: the sum of marginal revenues up to any output equals total revenue at that output.
• AR is TR averaged over units, and the AR curve is the demand curve.
• The AR-MR link follows the average-marginal rule: when AR is constant (perfect competition), $MR = AR$; when AR falls (imperfect competition), $MR < AR$ and MR falls faster (for a linear demand curve, twice as fast); MR can be negative while TR is still positive but falling.

Stating AR and MR are always equal (true only under perfect competition). Defining MR as TR/Q (that is AR). Overlooking that AR equals price and therefore that the demand curve is the average revenue curve.