The average revenue of a firm is its revenue that is obtained on average from each physical unit of its sale. Therefore, AR shall be obtained, at any quantity of output sold, if the TR will be divided by the quantity of output itself.

The formula for calculating average revue can be written as:

At any q, AR = TR/q = p x q/q = p  …… (3.2)

That is, the price of the product itself is the average revenue of the firm at any quantity of output sold. In an imperfectly competitive market, the price of the product, p, depends inversely on the quantity of output sold (q), and, in a competitive market, p is a constant, independent of q.


That is why, it can be written in an imperfectly competitive market:

AR(= p) = AR(q), dp/dq < 0 and   ……(3.3)

in a perfectly competitive market,

AR(= p) = constant, dp/dq = 0  …….(3.4)