Average revenue
Also called: AR · Topic: Theory of the Firm, Supply and Perfect Competition · NCERT: Class 12, Ch 4 "The Theory of the Firm under Perfect Competition"
Meaning
Average revenue (AR) is total revenue per unit of output. It is the revenue the firm earns on each unit sold, on average. AR = TR/q For a price-taking firm, TR = p × q, so AR = (p × q)/q = p. The competitive firm's AR equals the market price at every output, and its AR curve is a horizontal line at the market price.
Example
In NCERT's candle example, the market price is ₹10 per box. At 3 boxes, TR = ₹30, so AR = 30/3 = ₹10. At 5 boxes, TR = ₹50 and AR is still ₹10.
Don't confuse with
- Marginal revenue: this is the extra revenue from one more unit, not the average per unit. They are equal (both = p) only for a price taker. For a monopoly, MR is less than AR.