What Is Revenue?
Revenue is the earning that an enterprise has from its normal business pursuits, usually from the sale of commodities and services to consumers. Revenue is also mentioned and referred to as turnover or sales. A few companies get revenue from royalties, other fees or interest .
An enterprise believes that it can sell as many amount of the commodity as it requires by setting a cost price less than or equivalent to the market cost price. In such a case, there is no logic to set a cost price lower than the market cost price. In other words, should the enterprise want to sell some amount of the commodity, the cost price that it sets is exactly equivalent to the market cost price.
Types Of Revenue
- Total Revenue : Total revenue is the total receipts a vendor can procure from selling commodities or service to customers. It can be mentioned as P × Q, which is the cost price of the commodities multiplied by the amount of the sold commodities. Then, total revenue (TR) of an enterprise is defined as the market cost price of the commodity (p) multiplied by the enterprise’s output (q). Hence,
TR = p × q
- Average Revenue : Average revenue is the revenue initiated per unit of production sold. It plays a vital role in taking decision of an enterprise’s profit. Per unit profit is average(total) cost subtracted by average revenue. An enterprise usually solicits to manufacture the amount of output that maximizes profit.
AR = TR/q = p× q/q = p
- Marginal Revenue : Marginal revenue is the rise in revenue that is an outcome from the sale of 1 additional unit of output. While marginal revenue can remain unchanged over a definite degree of output, it follows the law of diminishing returns and will gradually slow down as the output degree rises. Perfectly competitive firms continue manufacturing output until marginal revenue equals marginal cost.
MR = Change in total revenue / Change in quantity
This is a detailed and an elucidated information about the concept Revenue. To learn more, stay tuned to BYJU’S.