3.5 AVERAGE REVENUE, TOTAL REVENUE AND PROFIT
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Total Revenue (TR), is the total flow of income to a firm from selling a given quantity of output at a given price. It is found by multiplying the price of the product by the quantity sold.
Total Revenue (TR) = Price (P) x Quantity (Q)
Average Revenue (AR), is the revenue per unit. It is found by divided the total revenue by the quantity.
Average Revenue (AR) = Total Revenue / Quantity (Q) = P x Q / Q= Price (P)
Average Revenue (AR), is the revenue per unit. It is found by divided the total revenue by the quantity.
Average Revenue (AR) = Total Revenue / Quantity (Q) = P x Q / Q= Price (P)
The average revenue is the price. In a market, the equilibrium between the supply and the demand curve is the price. It is the demand curve that helps to determine the price that is charged.
Provided that there is no price discrimination, meaning that only one price is chosen in the market, the point where supply intercepts demand is what the price will be. For P1 average revenue will be AR1 and for the P2 average revenue will be AR2. Therefor, the demand curve is equal to average revenue.
Profit is the surplus remaining after the total costs are taken away from total revenue. It can be worked out by
Profit = Total Revenue (TR) – Total Costs (TC)
Business owners can choose that they want to do with this profit. They could take it out by giving it to the owners of the company as dividends or keep the profit within the company and invest it with the intention of future growth and higher dividends in the future, this is known as retained earnings. Profit can also be negative and this means that the company makes a loss or negative profit. A loss will occur when total costs are greater than total revenue
Provided that there is no price discrimination, meaning that only one price is chosen in the market, the point where supply intercepts demand is what the price will be. For P1 average revenue will be AR1 and for the P2 average revenue will be AR2. Therefor, the demand curve is equal to average revenue.
Profit is the surplus remaining after the total costs are taken away from total revenue. It can be worked out by
Profit = Total Revenue (TR) – Total Costs (TC)
Business owners can choose that they want to do with this profit. They could take it out by giving it to the owners of the company as dividends or keep the profit within the company and invest it with the intention of future growth and higher dividends in the future, this is known as retained earnings. Profit can also be negative and this means that the company makes a loss or negative profit. A loss will occur when total costs are greater than total revenue