Question

Out of the three concepts of revenue, which is also known as price?

Hint:

In perfectly competitive markets, Average Revenue (AR) is equivalent to the price of the product.

Answer 1

Step 1: Defining the Three Concepts of Revenue:
Revenue is the income that a firm receives from the sale of its goods and services. There are three main concepts of revenue:
- Total Revenue (TR): The total amount of money a firm earns from the sale of its output, calculated by multiplying the price per unit by the quantity sold.
- Average Revenue (AR): The revenue earned per unit of output sold. It is calculated by dividing total revenue by the quantity sold. Mathematically, \(\text{AR} = \frac{\text{TR}}{Q}\).
- Marginal Revenue (MR): The additional revenue earned from selling one more unit of output. It is the change in total revenue resulting from a change in the quantity sold.
Step 2: Which Concept is Known as Price?
Among the three concepts, Average Revenue (AR) is also known as the price. This is because the price is essentially the revenue earned per unit of output, which is represented by the average revenue curve. In perfectly competitive markets, AR equals the market price.
Step 3: Final Conclusion:
The concept of Average Revenue (AR) is also known as the price, as it reflects the revenue per unit of output sold, which is the price consumers pay for each unit in the market.