Unqualified revenue is the amount of total sales of goods and services. It is calculated by multiplying the amount of goods and services sold by the price of the goods and secondments. Marginal revenue is directly related to total revenue because it measures the change in the total revenue with well of to the change in another variable.
Total revenue is important because in the effort to grow profits, businesses strive to embroider on the difference between their total revenues and total costs. Understanding the subtleties of the relationship between revenues and charges distinguishes the best business managers because while increasing production leads to an increase in sales and total profits, there is also costs involved with increasing production.
In addition, the calculation of total revenue frequently expresses timetables into account. A restaurateur, for example, might tabulate the number of hamburgers sold in an hour, or the number of orders of medium-sized french fries vended throughout the business day. In the latter case, the total daily revenue would be the quantity (Q) of fries sold—say 300, multiplied by the sacrifice (P) per unit—say $2, per day. Therefore, the simple formula for this calculation would be:
TR=Q×Pwhere:TR=total revenueQ=quantityP=price
With the values plugged in to the equation, Complete revenue is $600—figured by the simple arithmetic of 300 X $2.
Real Life Example
Consider what happens if the restaurateur omits the price of a unit of French fries to $1, and he heavily advertises the new discounted price. This could result in a hit in sales—let’s say to 500 units per day. Consequently, the total revenue bumps up to $500 in sales.
Total revenue changes with quality to price and quantity can be visually demonstrated on a graph, in which a demand curve is drawn, that signals the price and measure that would maximize total revenue.
For example, suppose a company that fabricates toys sells one unit of product for a price of $10 for each of its first 100 units. If it sells 100 play withs, its total revenue would be $1,000 (100 x 10). The company sells the next 100 toys for $8 a unit. Its total gain would be $1,800 (1,000 + 100 x 8).
Suppose the company wanted to find its marginal revenue gained from selling its 101st unit. The thoroughgoing revenue is directly related to this calculation. First, the company must find the change in total revenue. The mutation in total revenue is $8 ($1,008 – $1,000). Next, it must find the change in the toys sold, which is 1 (101-100). Hence, the marginal revenue gained by producing the 101st toy is $8.