REVENUE ANALYSIS

DEFINITION OF REVENUE

• The amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the "top line" or "gross income" figure from which costs are subtracted to determine net income.

AVERAGE REVENUE VS. MARGINAL REVENUE • Average revenue is

the revenue per unit of output sold. Average revenue can be calculated by dividing the total revenue by number of units sold.

• Marginal revenue is the net addition to the total revenue by selling one more unit of commodity. It is the revenue of an additional unit sold. Stated algebraically stated, marginal cost is the addition made to total revenue by selling n units of a product instead of (n -1) where n is the given number.

MARGINAL EQUALS AVERAGE The equality between average revenue and

marginal revenue occurs for a firm selling an output in a perfectly competitive market.

MARGINAL LESS THAN AVERAGE • Marginal revenue falling short of average

revenue occurs for a firm selling an output in a monopoly market.

PROFIT MAXIMIZATION

• Profit maximization is the short run or long run process by which a firm determines the price and output level that returns the greatest profit. There are several approaches to this problem. The total revenue–total cost perspective relies on the fact that profit equals revenue minus cost and focuses on maximizing this difference, and the marginal revenue–marginal cost perspective is based on the fact that total profit reaches its maximum point where marginal revenue equals marginal cost.

THANK YOU