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Question

How are the total revenue of a firm, market price, and the quantity sold by that firm related to each other?

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Solution

Total revenue is defined as the total sales proceeds of a producer by selling corresponding level of output. In other words, it is defined as price times the quantity of output sold.

Total Revenue = Price × Quantity of output sold

TR = P × Q

TR = PQ

In a perfectly competitive market, the market price is given, i.e., a firm acts as a price taker and cannot influence the price. Hence, a particular firm can influence its TR by altering the quantity of output sold.


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