Total revenue is the sum of marginal revenues at different levels of output. It can also be found by multiplying price (AR) with the quantity of output. From the TR schedule, we can derive the AR and MR as under:
| Units of Output (Q) |
TR(Rs.) |
AR = TR/Q |
MR = ΔTR/ΔQ = TRn - TRn - 1 |
| 1 |
100 |
100 |
100 |
| 2 |
180 |
90 |
800 |
| 3 |
240 |
80 |
60 |
| 4 |
280 |
70 |
40 |
| 5 |
300 |
60 |
20 |
| 6 |
300 |
50 |
0 |
| 7 |
280 |
40 |
-20 |
The table shows that:
(i) TR increases at a decreasing rate, because MR is decreasing.
(ii) TR is maximum (= Rs.300) when MR = 0.
(iii) TR starts declining when MR is negative.
(iv) Declining AR implies that MR should be declining faster than AR.
