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. For a monopoly, oligopoly, or monopolistically competitive firm, the total revenue curve is a "hump-shaped" curve, increasing at a decreasing rate, reaching a peak, then declining.

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

total revenue

=

price

x

quantity

Perfect Competition

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.

The "curve" is actually a "straight line" because Phil is a price taker in the zucchini market. He receives $4 for each pound of zucchinis sold whether he sells 1 pound or 10 pounds. The constant price is what makes Phil's total revenue curve a straight line.

Monopoly, Oligopoly, and Monopolistic Competition

Total Revenue, Medicine Style

The table to the right summarizes the total revenue received by another hypothetical firm, Feet-First Pharmaceutical. This firm owns the patent to Amblathan-Plus, the only cure for the deadly foot ailment known as amblathanitis. As the only producer of Amblathan-Plus, Feet-First Pharmaceutical is a monopoly with extensive market control, facing a negatively-sloped demand curve. To sell a larger quantity of Amblathan-Plus, Feet-First Pharmaceutical must lower the price.

Consider a few tidbits of information about total revenue for a firm with market control.

• First, like perfect competition, total revenue is zero if Feet-First Pharmaceutical sells no medicine. This makes sense. If nothing is sold, no revenue is received.


• Second, the price changes with the quantity of output sold. Feet-First Pharmaceutical can sell 1 ounce of medicine for $10 per ounce. However, if it choses to sell 5 ounces, then it must lower the price to $8 per ounce.


• Third, as Feet-First Pharmaceutical sells more medicine it receives more total revenue... UP TO A POINT. While total revenue received by Feet-First Pharmaceutical increases for the first 10 ounces sold, it declines for the 12th ounce.


• Fourth and last, unlike perfect competition, the extra revenue generated for selling more medicine is not constant nor is it equal to the price. For example, the 5th ounce of medicine adds a extra $6 of revenue even though the price is $8.

Total Revenue Curve, Medicine Style

The vertical axis measures total revenue and the horizontal axis measures the quantity of output (ounces of medicine). Although quantity on this particular graph stops at 12 ounces of medicine, it could go higher.

This curve indicates that if Feet-First Pharmaceutical sells 1 ounce of medicine (at $10 per ounce), then it receives $10 of total revenue. Alternatively, if it sells 10 ounces (at $5.50 per ounce), then it receives $55 of total revenue. Should it sell 12 ounces (at $4.50 per ounce), then it receives only $54 of total revenue.

For Feet-First Pharmaceutical the total revenue "curve" actually is a "curve." The slope of this curve falls as more output is produced, eventually reaching a peak, then becoming negative. The changing slope of this curve is due to the changing price.