Definitions of total revenue (TR) and average revenue (AR)

Total Revenue (TR) is the total amount of money a firm receives from selling its goods or services.

Formula:

\$TR = P \times Q\$

Where:

• \$P\$ = price per unit (in £ or $)
• \$Q\$ = quantity sold (in units)

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

Formula:

\$AR = \frac{TR}{Q}\$

In perfect competition, AR equals the market price (P).

Lemonade Stand Analogy 🍋

Imagine you run a lemonade stand.

Scenario: You sell 50 cups of lemonade at £2 each.

Calculations:

• TR = 50 × £2 = £100
• AR = £100 ÷ 50 = £2 per cup

So, TR is the total money you collect (£100), and AR is the average money you get per cup (£2).

Exam Tips 📚

1. Remember the core formulas: \$TR = P \times Q\$ and \$AR = \frac{TR}{Q}\$.
2. In perfect competition, AR = P. Use this to simplify calculations.
3. When given a graph of price and quantity, you can find TR by multiplying the price on the y‑axis by the quantity on the x‑axis.
4. Check units: TR is in money (£ or $), AR is in money per unit.
5. Use the analogy of a lemonade stand or a bakery to explain concepts to peers.