What is the relation between total revenue and marginal revenue?
Answers
Answer:
Total revenue :
Total revenue is the amount of total sales of goods and services. It is calculated by multiplying the amount of goods and services sold by the price of the goods and services. Marginal revenue is directly related to total revenue because it measures the change in the total revenue with respect to the change in another variable.
TR=Q×P
where:
TR=total revenue
Q=quantity
P=price
Real Life Example :
Consider what happens if the restaurateur drops the price of a unit of French fries to $1, and he heavily advertises the new discounted price. This could result in a bump in sales—let’s say to 500 units per day. Consequently, the total revenue bumps up to $500 in sales.
Marginal revenue :
Marginal revenue is the increase in revenue that results from the sale of one additional unit of output. While marginal revenue can remain constant over a certain level of output, it follows the law of diminishing returns and will eventually slow down as the output level increases. Perfectly competitive firms continue producing output until marginal revenue equals marginal cost.
Total revenue is useful to earn profit in a business whereas marginal revenue is useful to measure the revenue of a business.
What is the difference between total revenue and marginal revenue?
- Total revenue is the total amount of goods and services whereas marginal revenue is used to measure the increased total revenue
- Total revenue is equal to the quantity multiplied by the price whereas marginal revenue is equal to the change in total revenue by the change in quantity sold
- When total revenue increased at an increasing rate then the marginal revenue also increases