Key terms
- Total revenue
- Total revenue is the income a firm generates from selling its products, the price of the product times the quantity sold.
- Marginal revenue
- Marginal revenue is the additional revenue gained from selling one more unit, the change in total revenue divided by the change in quantity.
Average revenue comes out equal to the price
Average revenue is total revenue divided by the quantity sold, the revenue per unit. When every unit sells at the same price, total revenue is price times quantity, so dividing by quantity leaves the price. That is why the demand curve a firm faces doubles as its average revenue curve: at each quantity it reads off the price, and the price is the revenue per unit.