Total Revenue in Economics | Definition & Formula – Video & Lesson Transcript |

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What is Total Revenue?

The finish of businesses is to make money from the products or services that they provide. Terms like “ tax income ” and “ profits ” are much used to describe those goals. The total revenue definition is : the combination of all incoming sources of money that the company has earned through the deal of goods or services. total tax income is calculated as an modal sales price per good or unit multiplied by the number of goods or units that were sold. sum gross does not take into account any expenses directly related to the monetary value of making the good, delivering the product or service, or general operate expenses like salaries, taxes, or utilities. The trace is an exercise of sum tax income for a company.

  • A granite yard sells standard slabs of marbled granite. The average price per square foot of granite is $30. The yard sold 100,000 square feet in a year. It costs an average of $12 per square foot to obtain the granite and $8 a square foot for operating expenses related to the business. Total revenue is $3,000,000 for the year. The total revenue is calculated: $30 X 100,000 square feet sold = $3,000,000.

In this exemplar, the costs associated with providing the granite are not calculated in the full tax income. alone the price of the product and the numeral sold are used to calculate the total tax income, flush though the other costs affect overall profits. evening though entire gross is not inevitably indicative mood of overall profits, it is however authoritative to business owners. total tax income provides information on how much money a company is making and gives insight into mathematical process decisions like price, product, and the ship’s company ‘s overall interaction with the market itself. Since full tax income is significant to businesses in terms of price, demand, and rival, the close it is to a arrant contest market, the more important the gross numbers become. If a company is in a monopoly, gross does not guide decisions as much .

Total Revenue and Marginal Revenue

There are two main measures of tax income that companies use to gauge sales. total gross looks at the total sales as an average numeral per unit and then multiplies it by the act of units sold. By contrast, marginal revenue measures the money that a company will make per extra unit sold. This might seem like a pleonastic measure, but fringy tax income signals the steer at which making extra units will result in less tax income per whole. When a company is profitable and efficient, total gross should match the marginal tax income. But at a certain distributor point of increase production, sales will have diminishing returns. This means that evening if total tax income increases, the bare gross, or extra gross for each sale, can decline. Finding bare gross uses a convention that divides the change in gross over the change in measure sold. borderline Revenue = Change in Revenue / Change in Quantity Example If an car manufacturer sells cars for $ 50,000 ( “ total gross pace ” ) and sells 1000 cars, the sum tax income for the class is $ 50,000,000. If at the last minute of the class another car is sold, the raw sum gross is $ 50,050,000. The fringy gross is : ( $ 50,050,000- $ 50,000,000 ) / ( 1,001-1,000 ) = $ 50,000, which is the same entire tax income rate as before that final car was sold. however, if the car manufacturer had two leftover units at the end of the year and sold them at discounted prices of $ 45,000 and then $ 35,000, the bare tax income for the unit that sold for $ 45,000 would be : ( $ 50,045,000- $ 50,000,000 ) / ( 1,001-1,000 ) = 45,000/1 = $ 45,000. then, the marginal gross for the other unit of measurement would be : ( $ 50,080,000- $ 50,045,000 ) / ( 1,002-1,001 ) = $ 35,000/1 = $ 35,000. In this case, the marginal tax income has decreased with both extra units sold.

This bare tax income graph shows that at a certain point, the gross per unit begins to decrease and no long is in synchronize .
A graph of marginal revenues

How to Find Total Revenue in a Graph

The image under shows a distinctive, sum gross graph with the sales on the y axis and the units sold on the x-axis. The credit line will move evenly to the right arsenic long as the price of sold goods remains the lapp.

This graph shows entire tax income where the gross rises at the lapp rate as the products sold .
A graph showing total revenue

Total Revenue Formula

The rule for finding full tax income is simple. It uses two datum points. The first data orient is the quantity of units, services, or subscriptions sold. The second base data detail is the price per unit. The price per unit is either the price of an item or the average price of units that have unlike price points. The formula looks like this : full Revenue ( TR ) = Quantity Sold ( Q ) x Price ( P ) The sum tax income is found below using the entire tax income recipe and by plugging in the granite yard data from the example above. TR = 100,000 ( units sold ) X 30 ( monetary value per unit )

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TR = $ 3,000,000

How to Calculate Total Revenue

total tax income calculations are not constantly so straightforward. The above exemplar assumes that the company sells lone one kind of granite and that the price stays constant. The world might be very different .

  1. If the price of the unit sold changed, then the average price per sale has to be calculated first. This entails adding the total sales for all of the same good and dividing it by the number of units sold. That will produce the average sale price per unit.
  2. If the company sells more than one kind of good, then an average sale price per unit must be calculated for each good.
  3. The TR formula must be used to calculate the revenue for each good. For example, if a company sells shirts and ties, they will calculate the total revenue for the ties and then the total revenue for the shirts.
  4. Once there is data for the total revenue for each product sold, the revenues can be added together to get the total revenue for all the products. The company would add the total tie revenue to the total shirt revenue to get the company’s total revenue.

Total Revenue Example

If the granite yard from the exercise above wants to calculate its annual gross for all their granite products, and it presently sell four different granite types, it would need to calculate the total tax income of each of the granite types and then add those four sums. The following table shows the products and their average prices per public square foot .

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