Concepts of Total Revenue, Average Revenue and Marginal Revenue

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Introduction To Revenue

In Accounting, revenue is that charge which is taken in exchange for some financial or other services and belongings. Revenue is also known as financial turnover. Some companies and industries charge revenue from interest and other fees. Revenue is earned during a specific period as a business income. 

In the balance, statement revenue is mentioned as section equity because revenue increases equity. Generally, revenue is received as cash or equivalents. From product selling and service, sales revenue is collected. Government incomes from tax revenue and they charge this revenue from personal properties and belongings. In the selling industry, revenue is an important issue.

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Total Revenue

Total revenue is the total income of a seller by selling goods and providing services to the customers. A fixed formula counts this revenue. Total revenue is the multiplication of goods price by the quantity of sold products. 

An example of total revenue is mentioned here. If a brand sells 10000 products of Rs. 5 for each, the total revenue is 50000(10000*5). Therefore, the concept of total revenue refers to the amount of money received by a brand on the sale of their product.


Formula

TR=P*Q 

[where TR is total revenue, P refers to the price, and Q is Quantity.]


Average Revenue

The revenue generated per unit of output sold is called average revenue. This revenue refers to the price of one unit of product selling. It helps to determine the brand's profit. The average revenue curve is also known as a demand card in the business market. Average revenue is the division of total revenue (TR) by quantity (Q) which also means Average revenue is equal to the price of each product. As an example, if a firm sells 50 products, and the total revenue is 1000, the average revenue will be 20(1000/50). Hence, we can say that average revenue is the profit of a firm per unit product.


Formula

AR=TR/Q or AR=P*Q/Q=P,

[where AR is average revenue, TR is total revenue, P is price and Q refers to Quantity.]


Marginal Revenue

The change in total revenue per unit product is called marginal revenue. It is an additional income per commodity. Marginal revenue is calculated by dividing the changing rate of total revenue by changing the rate of Quantity. 

If the total revenue of a firm changes by 1000 and the change in quantity is 5, then the marginal revenue is 200(1000/5). Hence, marginal revenue is the change in total revenue according to the change of quantity.


Formula

MR=∆TR/∆Q 

[where MR is marginal revenue, TR is total revenue, and Q stands for quantity.]

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Concept of Total Revenue Average Revenue and Marginal Revenue

In the business market, total revenue, average revenue, marginal revenue are internally related. According to the selling of a firm, total revenue is the whole product price; average revenue means the selling price per unit quantity and marginal revenue is the change of total revenue per unit quantity change. These are the concept of total, average and marginal revenue.


Concept of Total Revenue in Economics

Among all the revenue of the business market, total revenue is the most discussed one. The concept of total revenue is the most important among the concept of total, average and marginal revenue. In economics, total revenue refers to the whole selling price of a firm which also defines the brand quantity.


Concept of Cost and Revenue Total

The selling brand qualities define the concept of cost and revenue in total. The revenue cost refers to the manufacturing and delivery cost of products. It is mentioned in the income statement of the company, along with the concept of total revenue. Total revenues of money concepts capital corporations users decide the cost.


Solved Examples


Q. Calculate the Total, Average, and Marginal Revenue Where Each Product Price is 30, and the Quantity is 500.

Solution: From the concept of total, average and marginal revenue, we get the following results by calculation-

TR=500*30

=15000 

AR=15000/500

=30

MR is not applicable here.

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Did You Know?

The purpose of charging revenue is to record the information of users financial statements according to the Financial Accounting Standards Boards (FASB). It helps to detect any sudden change in users' finances or property. This board keeps an eye on users’ financial condition by some identification such as the contract with customers, transaction price, performance obligations in the contract, allocating transaction price, entity satisfaction of performance obligation, etc. Thus the whole revenue process goes on following the concept of total, average and marginal revenue.

FAQ (Frequently Asked Questions)

1. What is the Importance of Total Revenue?

The concept of total revenue is an important figure because a business must have a profit. If the total revenue is less, the profit is less. Total revenue and profit are directly proportional. To start a business, you must have plenty of knowledge of total revenue. The profit can also be a potential probability in the future. On the other hand, total revenue and price are inversely proportional. The total revenue increases and decreases with the price. But if unit elastic demand is present, the price does not affect the total revenue. The total revenue determines that the demand is elastic or inelastic.

2. What is the Relation Between Total Revenue and Marginal Revenue?

Though revenue includes only money, it is a very valuable factor in the business market. Many other primary and secondary marketplace matters directly or indirectly depend on the revenue. The two most important types of revenue are total revenue and marginal revenue. Total revenue is the total sale price of a whole firm. It is calculated with the price of each product and product quantity. Marginal revenue is the change in total revenue compared to the change in the quantity of product. Marginal revenue is directly related to the total revenue. Suppose the total revenue change is high, the marginal revenue increases. The marginal revenue is directly proportional to the total revenue change.