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Question
How are the total revenue of a firm, market price, and the quantity sold by that firm related to each other?
Solution
Total revenue is defined as the total sales proceeds of a producer by selling corresponding level of output. In other words, it is defined as price times the quantity of output sold.
Total Revenue = Price × Quantity of output sold
TR = P × Q
TR = PQ
In a perfectly competitive market, the market price is given, i.e., a firm acts as a price taker and cannot influence the price. Hence, a particular firm can influence its TR by altering the quantity of output sold.
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Calculate the total revenue, marginal revenue and average revenue schedules in the following table. Market price of each unit of the good is Rs 10.
|
Quantity Sold |
TR |
MR |
AR |
|
0 |
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|
1 |
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2 |
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|
3 |
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|
4 |
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|
5 |
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|
6 |
