What is the relation between market price and average revenue of a price taking firm?
In case of a price taking firm, the average revenue is equal to price. Average revenue (AR) can be defined as total revenue divided by the quantity sold.
Therefore, average revenue may be defined as revenue per unit of output sold.
AR = TR / Q
Where,
TR – Total Revenue = P X Q
AR – Average Revenue
Q – Quantity of Output Sold
AR = (P X Q)/Q = P
With help of following table we can understand this
Price | Quantity Sold | Total Revenue (TR) | Average Revenue (AR) |
10 10 10 10 10 | 1 2 3 4 5 | 10 20 30 40 50 | 10 10 10 10 10 |