Revenue Concepts: Total, Average and Marginal Revenue

Every business, whether a small trading firm in Cuttack or a large manufacturing company, must understand the money it earns from selling its output before it can judge whether a decision to expand, contract, or change its price is worthwhile. In business economics this earning is called revenue, and the concept-first way to study it is to distinguish three closely related measures — total, average and marginal revenue. These three form the earning side of the firm, exactly as total, average and marginal cost formed its spending side in the earlier Production and Cost chapter. This chapter's syllabus draws on the same standard microeconomic principles used across senior-secondary Business Economics questions and answers, so the treatment here is the well-established mainstream one, not tied to any single publisher.

Total Revenue (TR) is the whole amount a firm receives from selling a given quantity of output. If a firm sells $Q$ units at a price $P$ per unit, then

If a stationery wholesaler sells 200 notebooks at ₹40 each, its total revenue is $200 \times 40 = ₹8{,}000$. Total revenue is the starting point because profit itself is simply total revenue minus total cost.

Average Revenue (AR) is revenue per unit sold — the total revenue spread over the number of units:

The last step is important and often surprises students: average revenue is always equal to the price at which the good is sold. This is why the demand curve a firm faces — which plots price against quantity — is also its average revenue curve.

Marginal Revenue (MR) is the addition to total revenue from selling one more unit of output:

Marginal revenue is the concept a firm actually watches when deciding whether to sell an extra unit, because it compares the extra earning (MR) with the extra cost (MC) of that unit. As long as the extra unit adds more to revenue than to cost, producing it raises profit.