Total revenue can be represented in a table or as a curve. For a monopolistically competitive firm, the total revenue curve is a slightly curve line the 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, Sandwich Style

The table to the right summarizes the total revenue received by a hypothetical firm, Manny Mustard's House of Sandwich, for selling sandwiches in a monopolistically competitive market. The first column is the quantity of sandwiches sold, ranging from 0 to 10 sandwiches. The second column is the price Manny receives for selling his sandwiches, which ranges from $4.75 to $5.25 per sandwich.

The third column is then the total revenue Manny receives for producing and selling different quantities of sandwiches. If Manny sells only one sandwich at $5.25, then he receives only $5.25. If he sells 5 sandwiches at $5 each, he receives $25. 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 Manny Mustard sells no sandwiches. This makes sense. If nothing is sold, no revenue is received.


• Second, as Manny sells more sandwiches he receives more total revenue. As a monopolistically competitive supplier, the demand for Manny's sandwiches is relatively elastic. In the relatively elastic range of a demand curve, such as that facing Manny, a decrease in price generates an increase in quantity and an increase in total revenue.


• Third and last, for each extra sandwich Manny sells, he receives extra revenue. This marginal revenue is less than the corresponding price. For example, the price needed to sell 5 sandwiches is $5. However, the extra revenue generated from selling the fifth sandwich is only $4.80.

Total Revenue Curve, Sandwich Style

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

This curve indicates that if Manny sells 1 sandwich for $5.25, then he receives $5.25 of total revenue. Alternatively, if he sells 10 sandwiches at $4.75 each, then he receives $47.50 of total revenue.