Total revenue is the amount of money that a company earns by selling its goods and/or services during a period of time (e.g. a day or a week).
In general, microeconomic theory assumes that firms attempt to maximize the difference between total revenues and economic costs.
There are multiple kinds of revenue, including net and gross revenue, and also earnings from different revenue streams. In order to calculate revenue, you may need to combine revenue streams in order to find a total revenue number.
How to Calculate Total Revenue
One can calculate total revenue by multiplying the price per product by the total number of units of that product that were sold.
Total Revenue Formula
Total Revenue = Price x Quatntity
“P” refers to the price per unit of that product, while “Q” refers to the quantity sold during the period you’re calculating for.
Finding your profit
Once you have the total revenue, as long as you know your total cost as well, you can find the profit. In order to find that number, subtract the total cost from your total revenue. The equation for that looks like this:
Profit = TR – TC
Relationship between “P” and “Q”
In a perfectly competitive market, P is a constant, and Q does not affect it. However, most markets are imperfectly competitive. In an imperfectly competitive market, P has an inverse relationship with Q.
In an imperfectly competitive market, too, price is controlled by the firm; in order to sell higher quantities of the product, its price must decrease. Additionally, whatever kind of market you’re looking at, the total revenue is a function of Q.
Example of Calculating Total Revenue
Let’s use a numeric example to show you how to find total revenue.
For instance, let’s say a store sold ten handbags in a week. Each handbag costs $25. Multiply the number of handbags by $25 to find the total revenue:
10 handbags x $25 per handbag = $250
This shows that the total gross revenue for handbags that week is $250. That number does not account for taxes such as sales tax.
Most businesses do not just sell one item like handbags, however. Total revenue in most cases will constitute earnings from selling many different kinds of products.
In order to find the total revenue with multiple products being sold, you should calculate the total revenue for each product for a given period and then add that number up. For instance, if your total revenue for each product was $250 from handbags, $300 from shoes, and $100 from hats, then your total gross revenue for all products for that week would be $650.