RELATION BETWEEN TOTAL REVENUE – MARGINAL REVENUE -AVERAGE REVENUE

Relationship between TR and MR

1. When marginal revenue is positive (i.e.,) greater than zero, total revenue rises. It is up to 5 units in our example.
2. When marginal revenue becomes zero, total revenue is the maximum. It is evident from our example and diagram that at the 6^th unit of the commodity MR is zero and TR is the maximum.

• When marginal revenue becomes negative, total revenue start to fall. This is the case from 7^th unit onwards in our example. The diagram also shows that when marginal revenue is negative, MR curve goes below the X-axis and TR curve also starts to decline.

Relationship between AR and MR

1. When both AR and MR are falling, MR falls at a greater rate than the AR. In other words, if AR and MR are downward sloping curves, MR curve always remains below the AR curve.
2. MR can be negative but AR is always positive (i.e. greater than zero). That is why AR curve always remain above the X-axis while MR curve can go below the X-axis.