Question

Explain the Average Revenue (AR), Marginal Revenue (MR) and Total Revenue (TR).

Hint:

In perfect competition, AR = MR = Price.

Answer 1

Step 1: Define Total Revenue (TR).
Total Revenue (TR) is the total income a firm receives from selling a given quantity of goods or services. It is calculated by multiplying the price per unit by the quantity sold. \[ TR = P \times Q \] where \(P\) is the price of the good and \(Q\) is the quantity sold.
Step 2: Define Average Revenue (AR).
Average Revenue (AR) is the revenue earned per unit of output sold. It is calculated by dividing total revenue by the quantity sold. \[ AR = \frac{TR}{Q} = P \] In a perfectly competitive market, AR is equal to the price per unit.
Step 3: Define Marginal Revenue (MR).
Marginal Revenue (MR) is the additional revenue gained by selling one more unit of output. It is the change in total revenue divided by the change in quantity. \[ MR = \frac{\Delta TR}{\Delta Q} \] In perfect competition, MR equals the price, but in imperfect competition, MR is less than the price.
Step 4: Conclusion.
Thus, the key relationships are: - **Total Revenue (TR):** Total income from sales. - **Average Revenue (AR):** Revenue per unit of output. - **Marginal Revenue (MR):** Additional revenue from one more unit of output. Final Answer: \[ \boxed{\text{TR = P × Q, AR = P, }MR = \frac{\Delta TR}{\Delta Q}} \]