Relationship between TR and MR (When Price remains Constant)

What is Revenue?

Revenue is the amount received by an organisation from the sale of a given quantity of a commodity in the market. There are three important terms in Revenue; viz., Total Revenue, Average Revenue, and Marginal Revenue. The total receipts from the sale of a given quantity of a commodity are known as Total Revenue. The revenue per unit of the output sold of a commodity is known as Average Revenue. The additional revenue generated by selling an additional unit of output is known as Marginal Revenue. The relationship between revenues can be studied in two situations:...

Relationship between AR and MR (When Price Remains Constant)

In markets like perfect competition, the price of a commodity remains constant at all levels of output and any firm in the industry can not influence the market price. The sale of the product can be higher or lower at the same price only. This implies that the sale of any additional unit (MR) will be the same as AR. As a result, both AR and MR curves coincide in a horizontal straight line parallel to the X-axis....

Relationship between TR and MR (When Price remains Constant)

In markets like perfect competition, the price of a commodity remains constant at all levels of output and any firm in the industry can not influence it. The sale of a product can be higher or lower at the same price only. Since MR remains constant and MR = AR, TR also increases at a constant rate. Hence, the TR curve is a straight line with a positive slope. As TR is zero at the zero level of output and increases at a constant rate with the increase in sales, the TR curve starts from the origin....

Relationship between AR and MR (When Price falls with a rise in Output)

In markets like imperfect markets, the price tends to fluctuate and adjust according to the market forces of demand and supply. A firm can increase its volume of sales only by decreasing the price, so the AR falls with an increase in sales. The revenue from every additional unit; i.e., MR will be less than AR. As a result, both AR and MR curves slope downwards from left to right....

Relationship between TR and MR (When Price falls with a rise in Output)

In markets like imperfect markets, the price tends to fluctuate and adjust according to the market forces of demand and supply. A firm can increase its volume of sales only by decreasing the price, so the AR falls with an increase in sales. MR is the addition to TR when one more unit of output is sold. So, TR will increase when MR is positive, TR will fall when MR is negative, and TR will be maximum when MR is zero....

General Relationship between AR and MR

The relationship between AR and MR depends on whether the price remains the same or falls with a rise in output. However, if nothing is mentioned about the nature of price with the rise in output, then the following general reflection exists between AR and MR:...