Topic > Fixed and Marginal Cost Analysis - 1057

Average revenue is one such trend, which refers to the revenue generated per unit of product sold. The average revenue can be obtained by dividing the total revenue by the quantity sold. For example, if a company sells 160 baseball caps and its total revenue is $320, the average company revenue will be ($320 divided by 160 baseball caps) two dollars per baseball cap. Another term is marginal revenue, which refers to the additional revenue generated by selling an additional unit of product. For example, using the same baseball cap, with the exception that one more baseball cap is sold. So the total revenue is $320 when 160 baseball hats are sold; however, when another baseball cap is sold, the total revenue is $322 when 161 caps are sold. Therefore, marginal revenue is $2, which is the additional revenue received for the additional product sold. In other words, average revenue helps businesses determine the unit profit of a business, while marginal revenue highlights the correlation between the number of units sold and the total units sold.