1.6.1 Revenue and costs

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    SALES VOLUME AND REVENUE

    Total revenue (TR) is the revenue received from sale at a given level of output

    Total revenue = price x quantity sold

    Average revenue (AR) is the average receipt per unit. This is basically the price of each unit

    Average revenue = total revenue/quantity sold

    Marginal revenue is the extra revenue earned from the sale of one extra unit. It is the difference between total revenue at different levels of output.

     

    AVERAGE, FIXED, VARIABLE AND TOTAL COSTS

    Fixed costs are costs which do not vary with output. For example, rent, advertising

    and capital goods are fixed costs. They are indirect. Variable costs change with output. They are direct costs. For example, the cost of raw materials increases as output increases.

    The total cost is the cost to produce a given level of output

    Total costs = total variable costs + total fixed costs

    Average cost is the cost per unit

    Average costs = total costs / quantity produced

    Marginal cost is the cost of producing one extra unit.

    Percentage change can be calculated using the following formula:

    % change = (final value – initial value)/initial value

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