Revenue

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

AR = TR/Q

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)

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Relationship between Marginal Cost (MC) and Average Cost (AC).

1. Relationship between Marginal Cost (MC) and Average Cost (AC). [based on the above picture]

2. Relationship between Marginal Cost (MC) and Average Variable Cost (AVC). [just change the "AC" to "AVC"]

Example Question : Explain the relationship between marginal cost and average cost. [6 marks]

suggestion answer:

•  Diagram 2 marks
• explanation = 4 marks

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Cost of Production

Cost of production refers to the expenses incurred by the producer in producing a particular quantity of output. There are 7 types of short-run costs:

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Law of Diminishing Marginal Returns

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Types of Production

Types of Production

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