By Crystal Cristin

Understanding TR, AR, and MR: Key Metrics in Economics

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Revenue is money receipt of a firm from sales of a product.

THREE TYPES OF REVENUE:

  • TR(Total Revenue): It is the amount obtained by production of price and quantity sold.

Thus,

TR= P*Q

where,

TR= Total Revenue

P=price

Q=quantity sold

  • MR(Marginal Revenue): It is the amount obtained by ratio of change in total revenue and change in quantity sold.

Thus,

MR=change in total revenue/change in quantity sold

where,

MR=marginal revenue

  • AR(Average Revenue):It is the amount obtained by total revenue by quatity sold.

Thus,

AR=Total revenue/quantity sold

NOTE:

AR is always equal to price of commodity by:

AR= TR/Q

     =P*Q/Q

     =P

And,

TR=P*Q

or,P=TR/Q

       Therefore, P=TR/Q =AR.