Average revenue is referred to as the revenue that is earned per unit of output. In other words, it is the revenue that is obtained by the seller on selling each unit of the commodity.
Average revenue of a business is obtained by dividing the total revenue with the total output.
The average revenue is similar to the price if a seller sells two units of the same product at the same price. However, the average revenue varies if the two products are sold at two different prices.
Average revenue helps in estimating the profit of a business, as the profit is calculated by subtracting the average revenue from the average cost.
A market structure determines the relationship between the average revenue and the quantity of goods produced. In a perfectly competitive firm, the average revenue is equal to the price and the marginal revenue.
However, in monopolistic or oligopolistic firms, the average revenue is always higher than the marginal revenue.
The mathematical formula for calculating average revenue is given as follows:
AR = TR/Q
AR = Average revenue
TR = Total revenue
Q = Output
This concept is about the average revenue formula. It is a very important concept for determining the profit of a business. For more such interesting concepts on economics for class 12, stay tuned to our website.