Average revenue (AR) is the amount of money a business earns for every single unit of product it sells. It represents the mean income received per unit.

The Formula:

AR = Total Revenue / Quantity (AR = TR / Q)

Key Relationships:

• AR equals Price: Because the price is what a buyer pays per unit, AR is always equal to the price of the product.
• Perfect Competition: In this market type, AR remains constant and is equal to Marginal Revenue (MR). The demand curve is horizontal.
• Imperfect Competition: Here, AR decreases as the quantity sold increases. The demand curve slopes downward.
• Demand Curve: The AR curve is the same as the firm’s demand curve.

Note: Understanding AR is essential for companies to make smart pricing choices and to measure their influence in the market.