Total revenue can be represented in a table or as a curve. For a perfectly competitive firm, the total revenue curve is a straight line that emerges from the origin.

The total revenue received by a firm is price times quantity, often expressed as this simple equation:

total revenue

=

price

x

quantity

Total Revenue, Zucchini Style

The table to the right summarizes the total revenue received by a hypothetical firm, Phil the zucchini grower, for selling zucchinis in a perfectly competitive zucchini market. The first column is the quantity of zucchinis sold, ranging from 0 to 10 pounds. The second column is the price Phil receives for selling his zucchinis, which is $4 per pound. The third column is then the total revenue Phil receives for producing and selling alternative quantities of zucchinis. If Phil sells only one zucchini, then he receives only $4. If he sells five zucchinis, he receives $20. In each case, total revenue in column three is calculated as the quantity in the first column multiplied by the price in the second column.

Consider a few highlights of these total revenue numbers.

• First, total revenue is zero if Phil sells no zucchinis. This makes sense. If nothing is sold, no revenue is received.


• Second, the price remains unchanged. Phil can sell 1 pound of zucchinis or 10 pounds of zucchinis for the same $4 price.


• Third, as Phil sells more zucchinis he receives more total revenue. Moreover, because the price remains fixed, the only way for Phil to obtain more total revenue is to sell more zucchinis.


• Fourth and last, for each extra pound of zucchinis Phil sells, he receives an extra $4 of revenue. This suggests an important role of marginal revenue in the short-run production analysis of a perfectly competitive firm.

Total Revenue Curve, Zucchini Style

The vertical axis measures total revenue and the horizontal axis measures the quantity of output (pounds of zucchinis). Although quantity on this particular graph stops at 10 pounds of zucchinis, the nature of perfect competition indicates it could go higher.

This curve indicates that if Phil sells 1 pound of zucchinis, then he receives $4 of total revenue. Alternatively, if he sells 10 pounds, then he receives $40 of total revenue. Should he sell 100 pounds, then he would move well beyond the graph, with $400 of total revenue.