{"id":4029,"date":"2020-03-23T12:48:42","date_gmt":"2020-03-23T12:48:42","guid":{"rendered":"https:\/\/commerceiets.com\/?p=4029"},"modified":"2020-03-23T12:48:42","modified_gmt":"2020-03-23T12:48:42","slug":"theory-of-revenue","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/theory-of-revenue\/","title":{"rendered":"REVENUE"},"content":{"rendered":"\n<p>In this post, you will study Theory of Revenue. Understand the topic and make notes properly.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/theory-of-revenue\/#THEORY_OF_REVENUE\" title=\"THEORY OF REVENUE\">THEORY OF REVENUE<\/a><ul class='ez-toc-list-level-5' ><li class='ez-toc-heading-level-5'><ul class='ez-toc-list-level-5' ><li class='ez-toc-heading-level-5'><ul class='ez-toc-list-level-5' ><li class='ez-toc-heading-level-5'><ul class='ez-toc-list-level-5' ><li class='ez-toc-heading-level-5'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/theory-of-revenue\/#THEORY_OF_REVENUE_INCLUDES_FOLLOWING_TYPES_OF_REVENUES\" title=\"THEORY OF REVENUE INCLUDES FOLLOWING TYPES OF REVENUES\">THEORY OF REVENUE INCLUDES FOLLOWING TYPES OF REVENUES<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/theory-of-revenue\/#TOTAL_REVENUE\" title=\"TOTAL REVENUE\">TOTAL REVENUE<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/commerceiets.com\/theory-of-revenue\/#RELATIONSHIP_BETWEEN_TR_AR_AND_MR\" title=\"RELATIONSHIP\nBETWEEN TR, AR AND MR\">RELATIONSHIP\nBETWEEN TR, AR AND MR<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/commerceiets.com\/theory-of-revenue\/#REVENUE_CURVE_UNDER_PERFECT_MARKET_CONDITION\" title=\"REVENUE CURVE\nUNDER PERFECT MARKET CONDITION\">REVENUE CURVE\nUNDER PERFECT MARKET CONDITION<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/commerceiets.com\/theory-of-revenue\/#RELATIONSHIP_BETWEEN_AR_MR_AND_ELASTICITY_OF_DEMAND\" title=\"RELATIONSHIP BETWEEN AR, MR AND ELASTICITY OF DEMAND\">RELATIONSHIP BETWEEN AR, MR AND ELASTICITY OF DEMAND<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1 class=\"has-text-align-center wp-block-heading\" id=\"theory-of-revenue\"><span class=\"ez-toc-section\" id=\"THEORY_OF_REVENUE\"><\/span><strong>THEORY OF REVENUE<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h1>\n\n\n\n<p>Revenue is the amount that a firm\nreceives from the sale of the output. <\/p>\n\n\n\n<p><strong>ACCORDING\nTO PROF. DOOLEY<\/strong><\/p>\n\n\n\n<p><em>\u201c<\/em><em>The Revenue of a firm is its sales receipts or income.<\/em><em>\u201d<\/em><\/p>\n\n\n\n<p><strong>There are three concepts of revenue which are as follows:<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"580\" height=\"242\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-42.png\" alt=\"\" class=\"wp-image-4032\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-42.png 580w, https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-42-300x125.png 300w\" sizes=\"(max-width: 580px) 100vw, 580px\" \/><figcaption><strong>THEORY OF REVENUE<\/strong><\/figcaption><\/figure>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"theory-of-revenue-includes-following-types-of-revenues\"><span class=\"ez-toc-section\" id=\"THEORY_OF_REVENUE_INCLUDES_FOLLOWING_TYPES_OF_REVENUES\"><\/span><strong>THEORY OF REVENUE<\/strong> <strong>INCLUDES FOLLOWING TYPES OF REVENUES<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h5>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"total-revenue\"><span class=\"ez-toc-section\" id=\"TOTAL_REVENUE\"><\/span><strong>TOTAL REVENUE<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>TR is the amount of money that a firm receives for the offer of goods and services in the market. A firm\u2019s total revenue can be calculated as the quantity of goods sold multiplied by the price. The TR includes the <a href=\"https:\/\/commerceiets.com\/relationship-between-tp-ap-and-mp\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"product (opens in a new tab)\">product<\/a> of the quantity sold and the price.<\/p>\n\n\n\n<p><strong>TR = Q x P<\/strong><\/p>\n\n\n\n<p>Where,<\/p>\n\n\n\n<p>TR \u2013 Total Revenue<\/p>\n\n\n\n<p>Q \u2013&nbsp;Quantity&nbsp;of sale (units sold)<\/p>\n\n\n\n<p>P \u2013 Price per unit of output<\/p>\n\n\n\n<p><strong>ACCORDING TO CLOWER AND DUE&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <\/strong><\/p>\n\n\n\n<p>Total revenue may be defined as\nthe \u201cproduct of planned sales (output) and expected selling price.\u201d<\/p>\n\n\n\n<p><strong>ACCORDING TO STONIER AND HAGUE<\/strong><\/p>\n\n\n\n<p>\u201cTotal revenue at any output is\nequal to price per unit multiplied by quantity sold.\u201d <\/p>\n\n\n\n<p><strong>ACCORDING TO\nDOOLEY<\/strong><\/p>\n\n\n\n<p>\u201cTotal revenue is the sum of all\nsales, receipts or income of a firm.\u201d<\/p>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>AVERAGE\nREVENUE<\/strong><\/p>\n\n\n\n<p>AR is used as price in a perfectly competitive market. This can be found by the ratio of the firm\u2019s total revenue and the number of goods sold.<\/p>\n\n\n\n<p>AR =TR\/Q<\/p>\n\n\n\n<p>Where,<\/p>\n\n\n\n<p>AR \u2013 Average Revenue<\/p>\n\n\n\n<p>TR \u2013 Total Revenue<\/p>\n\n\n\n<p>Q \u2013 Total units sold<\/p>\n\n\n\n<p><a><strong>ACCORDING TO STONIER AND HAGUE<\/strong><\/a><\/p>\n\n\n\n<p>\u201cThe average revenue curve shows that the price of the\nfirm\u2019s product is the same at each level of output.\u201d <\/p>\n\n\n\n<p><strong>ACCORDING TO MC DONNELL<\/strong><\/p>\n\n\n\n<p>\u201cAverage revenue is the per unit revenue received\nfrom the sale of one unit of a commodity.\u201d<\/p>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>MARGINAL\nREVENUE<\/strong><\/p>\n\n\n\n<p>MR refers to the extra money received by selling one more additional unit of the commodity. It is an addition to the total revenue of a firm as new additional units are sold. By selling an additional unit, a firm earns additional revenue that adds to the total revenue and this addition to revenue is called MR.<\/p>\n\n\n\n<p>It is calculated as:<strong><\/strong><\/p>\n\n\n\n<p>MR = TR<sub>n&nbsp;<\/sub>\u2013\nTR<sub>n-1<\/sub><\/p>\n\n\n\n<p>Or<\/p>\n\n\n\n<p>MR =\u0394TR\/\u0394Q<\/p>\n\n\n\n<p>Where,<\/p>\n\n\n\n<ul><li>MR \u2013 Marginal Revenue<\/li><li>\u0394TR \u2013 Change in the\nTotal revenue<\/li><li>\u0394Q \u2013 Change in the\nunits sold<\/li><li>TR<sub>n<\/sub>&nbsp;\u2013\nTotal Revenue of n units<\/li><li>TR<sub>n-1<\/sub>&nbsp;\u2013\nTotal Revenue of n-1 units<\/li><\/ul>\n\n\n\n<p><strong>ACCORDING TO FERGUSON<\/strong><\/p>\n\n\n\n<p>&nbsp;\u201cMarginal revenue is the change in total\nrevenue which results from the sale of one more or one less unit of output.\u201d &nbsp;<\/p>\n\n\n\n<p><strong>ACCORDING TO KOUTSOYIANNIS<\/strong><\/p>\n\n\n\n<p>\u201cThe marginal revenue is the\nchange in total revenue resulting from selling an additional unit of the\ncommodity.\u201d<\/p>\n\n\n\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"relationship-between-tr-ar-and-mr\"><span class=\"ez-toc-section\" id=\"RELATIONSHIP_BETWEEN_TR_AR_AND_MR\"><\/span><strong>RELATIONSHIP\nBETWEEN TR, AR AND MR<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The relationship between TR, AR and MR can be well explained with the help of table:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"543\" height=\"248\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-43.png\" alt=\"\" class=\"wp-image-4033\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-43.png 543w, https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-43-300x137.png 300w\" sizes=\"(max-width: 543px) 100vw, 543px\" \/><figcaption><strong>THEORY OF REVENUE<\/strong><\/figcaption><\/figure>\n\n\n\n<p>The above table shows with the increase in the TR; AR and MR both decreases but rate of decrease in MR is more than the rate of decrease in AR. <\/p>\n\n\n\n<p>Then, there comes a point where the TR becomes maximum and constant i.e. 30. At this point the AR is still falling but MR becomes Zero.<\/p>\n\n\n\n<p>After that, the TR starts diminishing and then MR becomes negative and AR keeps on falling. <\/p>\n\n\n\n<p>The relationship can also be shown with the help of diagram:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"158\" height=\"301\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-44.png\" alt=\"\" class=\"wp-image-4034\"\/><figcaption><strong>THEORY OF REVENUE<\/strong><\/figcaption><\/figure>\n\n\n\n<p>In the above diagram, AR, TR and MR curve is shown at OY axis and Output is shown at OX axis. TR curve is increasing initially then becomes maximum and starts falling. AR curve is falling continuously. MR curve is initially falling then becomes zero and negative afterwards.<\/p>\n\n\n\n<p><strong>The relationship among TR, AR and MR can be\nsummarized as follows:<\/strong><\/p>\n\n\n\n<p>(i)TR increases at a diminishing rate with increase in the units of output, since more units of the commodity can only be sold at a lower price, such that MR is positive and is downward sloping.<\/p>\n\n\n\n<p>(ii) At the point when TR is maximum MR\nhappens to equal to zero.<\/p>\n\n\n\n<p>(iii) MR becomes negative, when TR decreases\nwith increase in the units of output.<\/p>\n\n\n\n<p>(iv) MR falls with the fall in AR, but, the\nrate of decrease in MR is much higher than that in AR.<\/p>\n\n\n\n<p>(v) MR may be positive, negative or zero, but\nAR is always positive (since negative price is illogical)<\/p>\n\n\n\n<p>The above results holds true in case of all\nforms of imperfect competition that is, monopoly, duopoly, oligopoly,\nmonopolistic competition, etc. Under imperfect competition, as a firm lowers\nthe price, the quantity demanded goes up and average revenue curve slopes\ndownward as a result.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"revenue-curve-under-perfect-market-condition\"><span class=\"ez-toc-section\" id=\"REVENUE_CURVE_UNDER_PERFECT_MARKET_CONDITION\"><\/span><strong>REVENUE CURVE\nUNDER PERFECT MARKET CONDITION<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-orange-background-color has-background\"><strong>REVENUE CURVES UNDER PERFECT COMPETITION<\/strong><\/p>\n\n\n\n<p>A Perfect Competition market is that type of market in\nwhich the number of buyers and sellers is very large, all are engaged in buying\nand selling a homogeneous product without any artificial restrictions and\npossessing perfect knowledge of the market at a time.<\/p>\n\n\n\n<p>Thus, in perfect competition an\nindividual firm is price taker, because the price is determined by the\ncollective forces of market demand and supply which are not influenced by the\nindividual. When price is the same for all units of a commodity, naturally AR\n(Price) will be equal to MR i.e., AR = MR. <\/p>\n\n\n\n<p>The schedule is shown in the table below:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-45-1.png\" alt=\"\" class=\"wp-image-4035\"\/><figcaption><strong>THEORY OF REVENUE<\/strong><\/figcaption><\/figure>\n\n\n\n<p>In table it is found that as output increases, AR remains the same i.e. Rs. 5. TR increases but at a constant rate. MR is also constant i.e. Rs. 5 and is equal to AR.<\/p>\n\n\n\n<p>Thus<\/p>\n\n\n\n<p>TR = AR x Q<\/p>\n\n\n\n<p>Also TR = MR x Q [Since AR = MR]<\/p>\n\n\n\n<p>This can also be shown with the help of diagram:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-46-1.png\" alt=\"\" class=\"wp-image-4036\"\/><figcaption><strong>THEORY OF REVENUE<\/strong><\/figcaption><\/figure>\n\n\n\n<p>In above figure, on the X-axis, quantity is taken whereas on Y-axis, there is revenue. At price OP, the seller can sell any amount of the commodity. In this case the AR curve is the horizontal line. The MR curve coincides with the AR.<\/p>\n\n\n\n<p>It is because\nadditional units are sold at the same price as before. In that case AR = MR. A\nnoteworthy point is that OP price is determined by demand and supply of\nindustry.<\/p>\n\n\n\n<p class=\"has-orange-background-color has-background\"><strong>REVENUE CURVES UNDER MONOPOLY<\/strong><\/p>\n\n\n\n<p>Monopoly refers to a market situation in which there is\nonly one seller of a commodity.<\/p>\n\n\n\n<p>There are no close substitutes for the commodity it\nproduces and there are barriers to entry. The single producer may be in the\nform of individual owner or a single partnership or a joint stock company. In\nother words, under monopoly there is no difference between firm and industry.<\/p>\n\n\n\n<p>Monopoly is opposite to perfect competition. Under monopoly both AR and MR curves slope downward. It indicates that to sell more units of a commodity, the monopolist will have to lower the price. This can be shown with the help of following table and diagram:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-47-1.png\" alt=\"\" class=\"wp-image-4037\"\/><figcaption><strong>THEORY OF REVENUE<\/strong><\/figcaption><\/figure>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-48-1.png\" alt=\"\" class=\"wp-image-4038\"\/><figcaption><strong>THEORY OF REVENUE<\/strong><\/figcaption><\/figure>\n\n\n\n<p>In case of pure monopoly, AR and MR curves slope downward steeply. In this situation, a producer is so powerful that by selling his output at different prices, he can make the consumer spend his income on the concerned commodity. It implies that TR of the monopolist will remain same whatever may be the price. Area below each point of AR curve and MR curve will be equal to each other. The curves are less than perfectly elastic.<\/p>\n\n\n\n<p class=\"has-orange-background-color has-background\"><strong>REVENUE CURVES UNDER MONOPOLISTIC COMPETITION<\/strong><\/p>\n\n\n\n<p>Monopolistic competition is a\nmarket form where there are large number of buyers and sellers selling the heterogeneous\ni.e. wide variety of products and incurring huge selling costs.<\/p>\n\n\n\n<p>The revenue curves under the\nmonopolistic competition are more than perfectly elastic.<\/p>\n\n\n\n<p>This can be explained with the help of following table and diagram:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-49-1.png\" alt=\"\" class=\"wp-image-4039\"\/><figcaption><strong>THEORY OF REVENUE<\/strong><\/figcaption><\/figure>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-50-1.png\" alt=\"\" class=\"wp-image-4040\"\/><figcaption><strong>THEORY OF REVENUE<\/strong><\/figcaption><\/figure>\n\n\n\n<p>In monopolistic competition, there exists the free price policy of a commodity of a firm which means the price of the commodity remains under the control of the firm. So to increase the sale of units, price has to be reduced. Because of more price elasticity of demand, AR and MR slope downward from left to right but both are with less sharpness of slope and AR and MR are nearer to each other.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"relationship-between-ar-mr-and-elasticity-of-demand\"><span class=\"ez-toc-section\" id=\"RELATIONSHIP_BETWEEN_AR_MR_AND_ELASTICITY_OF_DEMAND\"><\/span><strong>RELATIONSHIP BETWEEN AR, MR AND ELASTICITY OF DEMAND<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The elasticity of demand, AR and MR has a close relationship. If a firm knows any two of the three elements viz; AR and MR then it can easily find out the third element i.e. elasticity of demand.<\/p>\n\n\n\n<p><strong>The formula for the calculation\nis:<\/strong><\/p>\n\n\n\n<p>E = A \/ A-M&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <\/p>\n\n\n\n<p>WHERE<\/p>\n\n\n\n<p>E= ELASTICITY\nOF DEMAND<\/p>\n\n\n\n<p>A= AVERAGE\nREVENUE<\/p>\n\n\n\n<p>M= MARGINAL\nREVENUE<\/p>\n\n\n\n<p>This can be well explained with the help of following diagram:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-51-1.png\" alt=\"\" class=\"wp-image-4041\"\/><figcaption><strong>THEORY OF REVENUE<\/strong><\/figcaption><\/figure>\n\n\n\n<p>In this diagram, revenue has been\nshown on OY-axis while quantity of goods on OX-axis. AB is the average revenue\nor demand curve and AN is the marginal revenue curve. At point P on demand\ncurve, elasticity of demand is calculated with the formula,<\/p>\n\n\n\n<p>E<sub>p&nbsp;<\/sub>= Lower\nPortion \/ Upper Portion<\/p>\n\n\n\n<p>It can be seen in the figure that\nAEP and PMB are similar, thus ratio of their sides is also equal.<\/p>\n\n\n\n<p>E<sub>p&nbsp;<\/sub>= PB\/PA =\nPM\/AE<\/p>\n\n\n\n<p>And; \u2206AET and \u2206PTL are congruent triangles, therefore PL=AE. Putting PL in place of AE in the above equation, we shall get<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-52-1.png\" alt=\"\" class=\"wp-image-4042\"\/><figcaption><strong>THEORY OF REVENUE<\/strong><\/figcaption><\/figure>\n\n\n\n<p><a href=\"http:\/\/cdn.economicsdiscussion.net\/wp-content\/uploads\/2015\/05\/clip_image0151.jpg\" target=\"_blank\" rel=\"noopener\"><\/a>In this way, if value of E<sub>p<\/sub>&nbsp;is one, it means that price elasticity of demand is unity. Similarly, if it is more than one, price elasticity of demand is greater than unity and if it is less than one, price elasticity of demand is less than unity.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/demand\/\">Theory of Demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-demand\/\">Law of Demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/demand-function\/\">Demand Function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/exceptions-of-law-of-demand\/\">Exceptions of law of demand<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/elasticity-of-demand\/\">Elasticity of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/change-in-demand\/\">Change in demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/price-elasticity-of-demand\/\">Price elasticity of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-law-of-demand-and-elasticity-of-demand\/\">Law of demand Vs Elasticity of demand<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/factors-affecting-price-elasticity-of-demand\/\">Factors affecting price elasticity of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/production-function\/\">Production function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-short-run-long-run-production-function\/\">Short run vs long run production function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-variable-proportions\/\">Law of variable proportions<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/types-of-demand\/\">Types of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/managerial-economics\/\">Managerial economics<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/characteristics-of-managerial-economics\/\">Characteristics of managerial economics<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/scope-of-managerial-economics\/\">Scope of managerial economics<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/utility-analysis\/\">Utility analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-diminishing-marginal-utility\/\">Law of diminishing marginal utility<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-equi-marginal-utility\/\">Law of equi marginal utility<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/consumer-equilibrium\/\">Consumers Equilibrium<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/indifference-curve-analysis\/\">Indifference curve analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/consumer-equilibrium-using-indifference-curve-analysis\/\">Consumer equilibrium using indifference curve analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/relationship-between-tp-ap-and-mp\/\">Relationship between TP, AP and MP<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-increasing-returns\/\">Law of increasing returns<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/law-of-diminishing-returns\/\">Law of diminishing returns<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-constant-returns\/\">Law of constant returns<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/returns-to-scale\/\">Returns to Scale<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/economies-and-diseconomies-of-scale\/\">Economies and diseconomies of scale<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/concept-of-costs\/\">Concept of costs<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/relationship-between-ac-and-mc\/\">Relationship between AC and MC<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/traditional-theory-of-cost\/\">Traditional theory of costs<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/modern-theory-of-cost\/\">Modern theory of costs<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/explicit-vs-implicit-costs\/\">Explicit vs Implicit costs<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/revenue\/\">Revenue<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/perfect-competition\/\">Perfect competition<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/monopoly-meaning\/\">Monopoly<\/a>&nbsp;<\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/price-discrimination\/\">Price discrimination<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-perfect-competition-and-monopoly\/\">Difference between perfect competition and monopoly<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/perfect-and-monopolistic-competition\/\">Perfect Vs Monopolistic competition<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/monopoly-and-monopolistic-competition\/\">Monopoly and monopolistic competition<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/product-differentiation-strategy\/\">Product differentiation strategy<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/monopolistic-competition\/\">Monopolistic competition<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/national-income-in-india\/\">National Income in India<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/\">Measurement of national income in India<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/consumption-function\/\">Consumption function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/keynesian-psychological-law-of-consumption\/\">Keynes Psychological law of consumption<\/a><\/td><td><\/td><td><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https:\/\/www.linkedin.com\/in\/kajal-mahajan-7549b2197\/\" target=\"_blank\" rel=\"noreferrer noopener\">CONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"266\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-1024x266.jpg\" alt=\"THEORY OF REVENUE\" class=\"wp-image-787\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-1024x266.jpg 1024w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-300x78.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-768x199.jpg 768w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-1536x398.jpg 1536w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize.jpg 1920w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption><strong>THEORY OF REVENUE<\/strong><\/figcaption><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>In this post, you will study Theory of Revenue. Understand the topic and make notes properly. THEORY OF REVENUE Revenue is the amount that a firm receives from the sale of the output. ACCORDING TO PROF. DOOLEY \u201cThe Revenue of a firm is its sales receipts or income.\u201d There are three concepts of revenue which&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/theory-of-revenue\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;REVENUE&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":4043,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[113,92],"tags":[],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/4029"}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=4029"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/4029\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/4043"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=4029"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=4029"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=4029"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}