Explain the relationship between Marginal Revenue (MR) and Total Revenue (TR).
Explain the relationship between Marginal Revenue (MR) and Total Revenue (TR).
Total Revenue- The Total Revenue of a firm is the amount received from the sale of the output. Therefore, the total revenue depends on the price per unit of output and the number of units sold. Hence, we have
TR = Q x P
Where,
TR – Total Revenue
Q – Quantity of sale (units sold)
P – Price per unit of output
Marginal Revenue- Marginal Revenue is the amount of money that a firm receives from the sale of an additional unit. In other words, it is the additional revenue that a firm receives when an additional unit is sold. Hence, we have
MR = TRn – TRn-1
Or
MR=ΔTR/ΔQ
Where,
MR – Marginal Revenue
ΔTR – Change in the Total revenue
ΔQ – Change in the units sold
TRn – Total Revenue of n units
TRn-1 – Total Revenue of n-1 units
The relationship between Marginal Revenue and Total Revenue is as follows:
1. As long as MR is positive, TR increases
2. When MR is zero, TR is at its maximum point
3. TR falls when MR is negative.
Total Revenue- The Total Revenue of a firm is the amount received from the sale of the output. Therefore, the total revenue depends on the price per unit of output and the number of units sold. Hence, we have
TR = Q x P
Where,
TR – Total Revenue
Q – Quantity of sale (units sold)
P – Price per unit of output
Marginal Revenue- Marginal Revenue is the amount of money that a firm receives from the sale of an additional unit. In other words, it is the additional revenue that a firm receives when an additional unit is sold. Hence, we have
MR = TRn – TRn-1
Or
MR=ΔTR/ΔQ
Where,
MR – Marginal Revenue
ΔTR – Change in the Total revenue
ΔQ – Change in the units sold
TRn – Total Revenue of n units
TRn-1 – Total Revenue of n-1 units
The relationship between Marginal Revenue and Total Revenue is as follows:
1. As long as MR is positive, TR increases
2. When MR is zero, TR is at its maximum point
3. TR falls when MR is negative.
