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CBSECommerce (English Medium) Class 12
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Syllabus

Revenue Concepts

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Topics

  • Meaning of Revenue
  • Total Revenue (TR) 
  • Average Revenue (AR) 
  • Marginal Revenue (MR)
  • Behaviour under different market structures
CISCE: Class 12

Meaning of revenue

  • Revenue is the money (receipts) a firm gets by selling its output in a given time period.
  • Here, three main concepts are used:
    1. Total Revenue (TR)
    2. Average Revenue (AR)
    3. Marginal Revenue (MR)
CISCE: Class 12

Total Revenue (TR)

a) Definition

  • Total Revenue is the total income a firm receives from selling a given quantity of a good.
  • It is also called total sales receipts of the firm.

b) Formula

  • TR = P × Q
  • TR: Total Revenue
  • PP: Price per unit
  • QQ: Quantity sold in a given period

c) Example

  • If a firm sells 15 units at ₹20 per unit:
    TR = 20 × 15 = ₹300
  • If price stays the same and the firm sells more units, TR will increase.

d) TR and consumers’ expenditure

  • From the firm’s side, this is total revenue.
  • From consumers’ side, the same amount is total expenditure on that good.

e) TR as sum of MR

  • Total Revenue can also be written as the sum of marginal revenues of all units sold:
    TR = MR1 + MR2 + MR3 +⋯+ MRn

Key points on TR

  • TR depends on both price and quantity.
  • With constant price, TR increases at a constant rate as output rises.
  • If price changes with quantity, TR may increase at an increasing, constant, or decreasing rate.
CISCE: Class 12

Average Revenue (AR)

a) Definition

  • Average Revenue is the revenue per unit of output sold.
  • It is the per-unit sales receipt of the firm.

b) Formula

  • \[AR=\frac{TR}{Q}\]

c) Example

  • If TR is ₹300 from selling 15 units:

    • \[AR=\frac{300}{15}\] = ₹20 per unit.

d) AR and price

  • If all units are sold at the same price, AR is equal to the price of the commodity:
    AR = P

Key points on AR

  • AR tells “how much revenue is received on average from each unit.”
  • In usual Class 12 models, the AR curve of a firm is the same as its demand curve.
CISCE: Class 12

Marginal Revenue (MR)

a) Definition

  • Marginal Revenue is the additional revenue earned by selling one more unit of output.
  • It is the change in total revenue when output increases by one unit.

b) Discrete unit formula

  • For the nth unit:
    MRn = TRn − TRn− 1

c) Example

  • A firm sells 15 units and earns TR = ₹300.

  • It then sells 16 units and TR becomes ₹304 (price now ₹19 per unit).
    MR of the 16th unit = 304 − 300 = ₹4

d) General (change) formula

  • \[MR=\frac{\Delta TR}{\Delta Q}\]
    ΔTR: Change in total revenue
    ΔQ: Change in quantity (usually 1 unit)

Key points on MR

  • MR explains “how much extra revenue is earned by selling one extra unit.”
  • When MR is positive, TR is rising; when MR is zero, TR is maximum; when MR is negative, TR starts falling.
CISCE: Class 12

Behaviour under different market structures

a) Perfect competition (price constant)

  • Firm is a price taker; it can sell any quantity at the given market price.
  • Price stays constant as Q changes, so:
    1. AR = MR = Price (horizontal line).
    2. TR increases at a constant rate as output increases.

b) Imperfect competition (price falls as output rises)

  • Firm faces a downward‑sloping demand curve.
  • To sell more units, it must reduce price.
  • As output rises:
    1. AR falls.
    2. MR falls faster and lies below AR.
    3. TR first increases at a decreasing rate, reaches a maximum (when MR = 0), and may then fall (when MR < 0).

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