Question

Define Average Revenue. Show that Average Revenue and Price are same.

Why is Average Revenue always equal to price?

Answer 1

Average revenue is the revenue earned per unit of output sold in the market. It is identical to the price of the output produced.

AR = `"TR"/Q`

where

TR = total revenue

AR = `(P xx Q)/Q`

AR = P

Thus, AR is always equal to the price of the output

Answer 2

Average revenue of a firm is the total revenue per unit of output sold

AR = `"TR"/q`     ......(1)

TR = `p xx q`  .....(2)

By relating Equations 1 and 2,

AR = `(p xx q)/q = p`

When AR equals the market price, the firm can sell any amount of good at a given price