Economics is the social science that analyzes the production, distribution, and consumption of goods and services.

Wednesday, 28 March 2012


Concepts of Revenue

Revenue means the sale receipt of the quantity or output produced in a firm.

a.                  Total revenue (TR)

Total revenue (TR) is the value of a firm’s sales. In other words, total revenue refers to the total amount of money that a firm can obtain from the sales of its product. The formula is shown as below:

TR = P x Q

For example, Firm JLQ sells 5000 pair of shoes at the rate of RM50.00. Firm JLQ’s total revenue is

                        TR = P x Q

                        = 50 x 5000

                        = RM250 000.00

 b.                  Average revenue (AR)

Average revenue (AR) is defined as the total revenue per unit output sold. The formula is as shown below:

AR = P

c.                   Marginal revenue (MR)

Marginal revenue (MR) refers to the change in total revenue resulting from a one unit increase in quantity sold. Marginal revenue is equal to the change in total revenue divided by the change in output sold. The formula is as shown below:

MR = change in TR / Change in Q

d.                  Profit

Profit is the difference between the purchase price and the costs of bringing to market.

            Profit = Total Revenue (TR) – Total Cost (TC)


Some of students confused about revenue and profit.. from the explanation.. we can see the difference of them clearly..revenue is the total amount received by the firm, also known as "sales".. while the profit is net receiving of the firm.. that is revenue minus cost of production..