Total Revenue Formula | Seller’s Revenue

The money that a firm earns per period (per day, say) from selling its product is called his total revenue (TR) per day.

The formula for calculating total revenue can be written as:

TR = p x q = TR(q) …. (3.1)

Where p = price of the product

And q = quantity sold per period

Regarding the total revenue function, only in a perfectly competitive market, p is obtained to be a constant, independent of the firm’s quantity sold (q).

However, in most other types of market (which would be generally called imperfectly competitive markets), p depends inversely on q. That is why, in all types of market, perfectly competitive or otherwise; the firm’s total revenue (TR) is a function of q.

However, for the time being, remember only that a perfectly competitive firm thinks that at the exogenously given price of its product determined in the market, it can sell more or less any quantity.

On the other hand, price in an imperfectly competitive market is within the control of the firm, and if the firm wants to sell more of its product, it would have to reduce its price.