Business Economics -I (B.Com) 1st Sem Previous Year Solved Question Paper 2022

Total Revenue (TR) is the total income a company earns from selling a certain quantity of a product at a given price. It is calculated by multiplying the quantity sold (Q) by the price per unit (P), i.e., TR = P * Q.Average Revenue (AR), also known as price, is the revenue generated per unit sold. It is calculated as AR = TR / Q, where TR is Total Revenue, and Q is the quantity sold.

Marginal Revenue (MR) is the additional revenue a company earns from selling one more unit of a product. It’s the change in Total Revenue resulting from selling one more unit, i.e., MR = ΔTR / ΔQ.

Elasticity of Demand measures how responsive the quantity demanded of a product is to changes in its price. It’s calculated as the percentage change in quantity demanded (ΔQ) divided by the percentage change in price (ΔP), i.e., Elasticity = (ΔQ / Q) / (ΔP / P).

Now, let’s explore their relationships:
1. Total Revenue and Average Revenue:
 - When Average Revenue (AR) is constant, Total Revenue (TR) increases linearly with the quantity sold (Q).
 - If AR is declining (as is often the case with normal demand curves), TR will increase, but at a decreasing rate.
 - If AR is increasing, TR will also increase at an increasing rate.

2. Marginal Revenue and Average Revenue:
 - Marginal Revenue (MR) is the change in TR resulting from selling one more unit. It equals AR when AR is constant (perfectly elastic demand), decreases below AR as quantity increases (but remains positive), and becomes zero at the point where TR is maximized in a monopolistic market.

3. Elasticity of Demand and Total Revenue:
 - When demand is elastic (Elasticity > 1), a decrease in price (ΔP) will lead to a proportionally larger increase in quantity demanded (ΔQ), causing Total Revenue (TR) to increase.
 - When demand is inelastic (Elasticity < 1), a decrease in price will lead to a proportionally smaller increase in quantity demanded, causing TR to decrease.
 - When demand is unit elastic (Elasticity = 1), a change in price will lead to an equal percentage change in TR.

Conclusion : The relationships between Total Revenue (TR), Average Revenue (AR), Marginal Revenue (MR), and Elasticity of Demand depend on the shape and characteristics of the demand curve. 
Understanding these relationships is crucial for pricing and revenue optimization in economics and business decision-making.