Demand Elasticity and Revenue

There is a unique relationship between price elasticity and total revenue. Total revenue earned by the sale of the product of a firm is an indication of a firm's success. Rankings of firm size are usually made on the basis-of total revenue. Similarly; growth of a firm is often expressed in terms of increases in total revenue. These relationships can be written in the form of equations.

The price of a good connects the demand for the good and the revenue earned by that good. Total revenue (TR) is the product of-quantity (Q) sold and its-price (P). Marginal revenue- (MR) is the change in TR as-quantity changes by one unit Average revenue (AR) refers to the revenue per unit of quantity sold,

TR = Q.P.

MR = ΔTR/ΔQ

AR=TR/Q = Q.P/Q = P

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