Revenue: Concepts and Calculation of Total, Average and Marginal Revenue

1. What Is Revenue?

Revenue is the total amount of money a business receives from customers for the goods and services it sells during a given period. It is also called sales or turnover.

Revenue is different from profit. Revenue is the money received from sales, while profit is what remains after costs and taxes have been deducted from revenue.

2. Types of Revenue

Type	Meaning	Example
Operating revenue	Income generated from the firm’s main business activities.	Money received from selling goods or services.
Non-operating revenue	Income from activities outside the firm’s main business.	Interest income, dividends or income from selling assets.

3. Total Revenue (TR)

Total Revenue is the total income a firm receives from selling a given quantity of goods or services.

TR = Price × Quantity Sold

Worked Example

A seller sells 100 bowls of fufu at GH₵10 each.

TR = GH₵10 × 100 = GH₵1,000

4. Average Revenue (AR)

Average Revenue is the revenue earned per unit of output sold.

AR = TR ÷ Q

Using the fufu example:

AR = GH₵1,000 ÷ 100 = GH₵10 per bowl

In a perfectly competitive market, average revenue is equal to the price of the product.

5. Marginal Revenue (MR)

Marginal Revenue is the additional revenue earned when the firm sells one more unit. It measures the change in total revenue resulting from a change in quantity sold.

MR = ΔTR ÷ ΔQ

Equivalently:

MR = (TR₂ − TR₁) ÷ (Q₂ − Q₁)

Worked Example

Suppose the seller receives GH₵500 from selling 50 bowls and GH₵1,000 from selling 100 bowls.

MR = (GH₵1,000 − GH₵500) ÷ (100 − 50)

MR = GH₵500 ÷ 50 = GH₵10

6. See the Three Measures Together

Measure	Meaning	Formula
TR	Total income from sales.	Price × Quantity
AR	Revenue earned per unit.	TR ÷ Q
MR	Additional revenue from an increase in quantity sold.	ΔTR ÷ ΔQ

7. Build the Revenue Table

Suppose a firm sells each unit for GH₵10.

Quantity (Q)	Price (P)	Total Revenue (TR)	Average Revenue (AR)	Marginal Revenue (MR)
1	GH₵10	GH₵10	GH₵10	GH₵10
2	GH₵10	GH₵20	GH₵10	GH₵10
3	GH₵10	GH₵30	GH₵10	GH₵10
4	GH₵10	GH₵40	GH₵10	GH₵10
5	GH₵10	GH₵50	GH₵10	GH₵10

Check One Row

At Q = 4:

TR = GH₵10 × 4 = GH₵40

AR = GH₵40 ÷ 4 = GH₵10

MR = (GH₵40 − GH₵30) ÷ (4 − 3) = GH₵10

8. Revenue and Business Decisions

Revenue provides information about the income generated by sales. Firms can use revenue data when considering production and sales decisions. The relationship between marginal revenue and marginal cost is important: firms will typically increase production while MR exceeds MC.

9. Apply What You Know

1. A shop sells 50 bags of rice at GH₵20 each. Calculate TR.
   TR = GH₵20 × 50 = GH₵1,000.
2. If TR is GH₵1,000 from 50 units, calculate AR.
   AR = GH₵1,000 ÷ 50 = GH₵20.
3. If TR rises from GH₵1,000 at 50 units to GH₵1,400 at 70 units, calculate MR.
   MR = (GH₵1,400 − GH₵1,000) ÷ (70 − 50) = GH₵20.

10. Summary

Revenue is income from sales. Total Revenue measures the total income received, Average Revenue measures income per unit, and Marginal Revenue measures the additional income resulting from an increase in quantity sold.