Average Revenue Equals The Price

It is obtained by dividing the total revenue by the number of units sold.

Average revenue equals the price. Total revenue tr equals quantity of output multiplied by price per unit. Therefore in perfect competition average revenue is equal to marginal revenue as a single price the ruling market price is charged for all units sold by firms. Average revenue is the revenue per unit of the commodity sold. In our example average revenue is 500 100 5.

Where ar average revenue tr total revenue and q quantity sold. Total average and marginal revenues. Now when all units of a product are sold at the same price the average revenue equals price. In this article we will clarify these concepts with the help of some examples and look at the behavioral principles.

Tr price p total output q for instance if an organization sells 1000 units of a product at price of rs. 10 per unit the total revenue of the organization would be rs. This means that the additional revenue the firm earns for an extra unit sold is equal to 5 which is the same as the average revenue the firm earns for each unit sold. The average and marginal revenue curves are given by the same horizontal line.

Before you understand the different market forms it is important to know the concepts of total revenue average revenue and marginal revenue. How marginal revenue can be obtained from the changes in total revenue and what relation it bears to average revenue will be easily grasped from looking at table 21 3. Mathematically ar tr q. Thus average revenue means price.

The marginal revenue curve is a horizontal line at the market price and average revenue equals the market price.