Revenue is a type of income which is received by the firm. It is related to Total Revenue, Average Revenue and Marginal Revenue.
Total Revenue (TR) – It is total income of a firm by selling a commodity at a price. We can indicate it as:
TR = PXQ
TR = Total Revenue
P = Price
Q = Number of Units
Average Revenue (AR) – We can find it by dividing the Total Revenue with the number of units sold. It can be indicated as:
AR = TR/Q
TR = Total Revenue
Q = Number of Units
Marginal Revenue (MR) – It is the addition to the Total Revenue as a result of increase in the sale of an addition unit by the firm.
Relation between TR and Price Elasticity or Demand:
If the price elasticity of demand for his product is relatively inelastic (Ep <1),>1), increase in price will decrease it TR.
We can express via a diagram
When Price increases and Ep is relatively elastic i.e.
On the other hand we can say it as – When price decreases and Ep is relatively elastic i.e. (Ep <1)
In the condition of When price increases and Ep is relatively inelastic i. e.
There is another aspect also, when price decreases and Ep is relatively inelastic i.e. (Ep <1).
At last, we can say prices once fixed can not be kept constant forever; it has to be revised according to the condition and the economic situation. The main objective of pricing policy is to maximize profit for the firm, stability is necessary to win the confidence of the customers and it should be able to capture enough market for the firm.
Penetration pricing is when the firm charges low price than what the economic analysis is the practice of charging a price more than indicated by the economic analysis while introducing a new product and when the competition is weak.
Total Revenue (TR) – It is total income of a firm by selling a commodity at a price. We can indicate it as:
TR = PXQ
TR = Total Revenue
P = Price
Q = Number of Units
Average Revenue (AR) – We can find it by dividing the Total Revenue with the number of units sold. It can be indicated as:
AR = TR/Q
TR = Total Revenue
Q = Number of Units
Marginal Revenue (MR) – It is the addition to the Total Revenue as a result of increase in the sale of an addition unit by the firm.
Relation between TR and Price Elasticity or Demand:
If the price elasticity of demand for his product is relatively inelastic (Ep <1),>1), increase in price will decrease it TR.
We can express via a diagram
When Price increases and Ep is relatively elastic i.e.
On the other hand we can say it as – When price decreases and Ep is relatively elastic i.e. (Ep <1)
In the condition of When price increases and Ep is relatively inelastic i. e.
There is another aspect also, when price decreases and Ep is relatively inelastic i.e. (Ep <1).
At last, we can say prices once fixed can not be kept constant forever; it has to be revised according to the condition and the economic situation. The main objective of pricing policy is to maximize profit for the firm, stability is necessary to win the confidence of the customers and it should be able to capture enough market for the firm.
Penetration pricing is when the firm charges low price than what the economic analysis is the practice of charging a price more than indicated by the economic analysis while introducing a new product and when the competition is weak.