Total Revenue

(noun)

The profit from each item multiplied by the number of items sold.

Related Terms

Examples of Total Revenue in the following topics:

  • The Supply Curve in Perfect Competition

    • The total revenue-total cost perspective and the marginal revenue-marginal cost perspective are used to find profit maximizing quantities.
    • The various types of cost curves include total, average, marginal curves.
    • There are two ways in which cost curves can be used to find profit maximizing quantities: the total revenue-total cost perspective and the marginal revenue-marginal cost perspective.
    • The total revenue-total cost perspective recognizes that profit is equal to the total revenue (TR) minus the total cost (TC).
    • The marginal revenue-marginal cost perspective relies on the understanding that for each unit sold, the marginal profit equals the marginal revenue (MR) minus the marginal cost (MC).

  • Conditions of Perfect Competition

    • The profit is the difference between a firm's total revenue and its total cost.
    • MR (Marginal Revenue) = Change in Total Revenue / Change in Quantity
    • The marginal revenue (MR) is the change in total revenue from an additional unit of output sold.
    • When price is less than average total cost, firms are making a loss.
    • Calculate total revenue, average revenue, and marginal revenue for a firm in a perfectly competitive market

  • Monopoly Price and Profit

    • The monopoly's total revenue is equal to the price of the widget multiplied by the quantity sold: P(30-2P).
    • This can also be rearranged so that it is written in terms of quantity: total revenue equals Q(30-Q)/2.
    • We know that all firms maximize profit by setting marginal costs equal to marginal revenue.
    • Finding this point requires taking the derivative of total revenue and total cost in terms of quantity and setting the two derivatives equal to each other.
    • At this point, the price of widgets is $13.50, the monopoly's total revenue is $40.50, the total cost is $18, and profit is $22.50.

  • Shut Down Case

    • In the short run, a firm that is operating at a loss (where the revenue is less that the total cost or the price is less than the unit cost) must decide to operate or temporarily shutdown.
    • When determining whether to shutdown a firm has to compare the total revenue to the total variable costs.
    • If the revenue the firm is making is greater than the variable cost (R>VC) then the firm is covering it's variable costs and there is additional revenue to partially or entirely cover the fixed costs.
    • A firm that exits an industry does not earn any revenue, but is also does not incur fixed or variable costs.
    • Firms will produce as long as marginal revenue (MR) is greater than average total cost (ATC), even if it is less than the variable, or marginal cost (MC)

  • Difference Between Economic and Accounting Profit

    • Economic profit consists of revenue minus implicit (opportunity) and explicit (monetary) costs; accounting profit consists of revenue minus explicit costs.
    • In one year, it cost $60,000 to maintain production, but earned $100,000 in revenue.
    • The accounting profit would be $40,000 ($100,000 in revenue - $60,000 in explicit costs).
    • Accounting profit is the difference between total monetary revenue and total monetary costs, and is computed by using generally accepted accounting principles (GAAP).
    • Economic profit is the difference between total monetary revenue and total costs, but total costs include both explicit and implicit costs.

  • Marginal Cost Profit Maximization Strategy

    • Marginal cost is the change in the total cost that occurs when the quantity produced is increased by one unit .
    • Marginal cost is the change in total cost divided by the change in output.
    • Marginal revenue is the additional revenue that will be generated by increasing product sales by one unit.
    • Marginal revenue is calculated by dividing the change in total revenue by the change in output quantity.
    • This strategy is based on the fact that the total profit reaches its maximum point where marginal revenue equals marginal profit .

  • Marginal Product of Labor (Revenue)

    • The marginal revenue product of labor is the change in revenue that results from employing an additional unit of labor.
    • The marginal revenue product of labor (MRPL) is the change in revenue that results from employing an additional unit of labor, holding all other inputs constant.
    • The marginal revenue product of a worker is equal to the product of the marginal product of labor (MPL) and the marginal revenue (MR) of output, given by MR×MP: = MRPL.
    • Theory states that a profit maximizing firm will hire workers up to the point where the marginal revenue product is equal to the wage rate, because it is not efficient for a firm to pay its workers more than it will earn in revenues from their labor.
    • Define the marginal product of labor under the marginal revenue productivity theory of wages

  • Marginal Revenue and Marginal Cost Relationship for Monopoly Production

    • revenue, and their spending, i.e. costs.
    • To find the profit maximizing point, firms look at marginal revenue (MR) - the total additional revenue from selling one additional unit of output - and the marginal cost (MC) - the total additional cost of producing one additional unit of output.
    • The marginal revenue curve for monopolies, however, is quite different than the marginal revenue curve for competitive firms.
    • Production occurs where marginal cost and marginal revenue intersect.
    • Production occurs where marginal cost and marginal revenue intersect.

  • Long Run Market Equilibrium

    • The long-run equilibrium of a perfectly competitive market occurs when marginal revenue equals marginal costs, which is also equal to average total costs.
    • The demand curve also represents marginal revenue, which is important to remember later when we calculate quantity supplied.
    • So a firm will produce goods until the marginal costs of production equal the marginal revenues from sales.
    • So the equilibrium will be set, graphically, at a three-way intersection between the demand, marginal cost and average total cost curves.
    • Firms can't make economic profit; the best they can do is break even so that their revenues equals their costs.

  • Deriving the Labor Demand Curve

    • Firms will demand labor until the marginal revenue product of labor is equal to the wage rate.
    • The additional revenue generated by hiring one more unit of labor is the marginal revenue product of labor (MRPL).
    • The marginal revenue product of labor (MRPL) is the additional amount of revenue a firm can generate by hiring one additional employee.
    • The amount a factor adds to a firm's total cost per period is the marginal cost of that factor, so in this case the marginal cost of labor is $10.
    • Explain how a company uses marginal revenue product in hiring decisions