1. Presentation on Concepts of Revenue. BCom II Business Economics,
Presentation on Concepts of Revenue BCom II Business Economics, Panjab University BY SHAH BANO PARVEEN Associate Professor in Economics, P.G. Govt. College, Sector-11,Chandigarh

2. Concepts of Revenue Y
Revenue
AR=MR
Output X Y
Revenue AR MR
Output X

4. Concepts of Revenue defined:
Total Revenue: Sum of all sale receipts or income of a firm.
TR=PхQ where P stands for Price of the product & Q stands for Quantity
Marginal Revenue: Change in TR which results from the sale of one more or one less unit of output. ∆TR/ ∆Q or MR=TRn – TRn-1
Average Revenue: Per unit revenue received from the sale of a commodity. AR=TR/Q=PQ/Q=P

5. Relationship : AR and MR under Perfect Competition
Perfect Competition is a market situation where single price prevails and it has no tendency to change.
Since under Perfect Competition, price of commodity remains constant. Therefore AR curve of firm is parallel to X axis.
When AR is parallel to X axis, MR = AR. Meaning that MR is also parallel to X axis.

6. Table: AR, MR under Perfect Competition
Units of
Commodity
Total Revenue
Price=
Average Revenue
Marginal Revenue 1 5 2 10 3 15 4 20 25

7. TR, AR and MR curves under Perfect CompetitionY Y TR
AR=MR P
Revenue
Revenue O X
Output
Output X

8. Relationship : AR and MR under Imperfect Competition
imperfect competition is a market situation where the firm is price maker and it knows that it must reduce price if it wants to sell more.
Therefore, AR curve of the firm is downward sloping. This leads to downward slope of MR curve also.
But the slope of MR curve is double the slope of AR curve.

9. AR and MR curves under Monopoly
Output
Price=AR
Total Revenue
Marginal Revenue 1 10
(10-0=10) 2
9.5 19 9
(19-10=9) 3 27 8
(27-19=8) 4
8.5 34 7
(34-27=7)

10. AR and MR curves under Monopoly
Revenue AR MR X
Output

11. AR and MR under Imperfect Competition
Following results emerge:
Both AR and MR are derived from TR
AR and MR are both downward sloping.
Slope of MR is double the slope of AR
AR is always positive but same is not true about MR as MR may be positive, zero or even negative

12. Relationship: AR, MR and Elasticity
In case of monopoly, AR & MR curves slope downward.
At different points of demand curve, elasticity of demand is different.
Before point A, Elasticity of Demand ‘E’>1 meaning that firm must reduce price if it wants to sell more. Here we find MR>0
At point A, Elasticity of Demand ‘E’=1 implying that MR =0 meaning that if firm changes its price now, its total revenue will be same.
After A, elasticity of demand ‘E’<1 meaning MR is negative.
Concludingly, firm earns profit if it fixes higher price.
E>1 R E V N U
E=1 B
E<1 AR A
OUTPUT MR

13. Thank you