I n t h I s c h a p t e r y o u w I l L

Q
UANTITY
T
OTAL
A
VERAGE
M
ARGINAL
(
IN GALLONS
)
P
RICE
R
EVENUE
R
EVENUE
R
EVENUE
(
Q
)
(
P
)
(
TR
ⴝ
P
ⴛ
Q
)
(
AR
ⴝ
TR
/
Q
)
(
MR
ⴝ
∆
TR
/
∆
Q
)
1 
$6
$ 6
$6
$6
2
6
12
6
6
3
6
18
6
6
4
6
24
6
6
5
6
30
6
6
6
6
36
6
6
7
6
42
6
6
8
6
48
6

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2 9 4
PA R T F I V E
F I R M B E H AV I O R A N D T H E O R G A N I Z AT I O N O F I N D U S T R Y
◆
How much revenue does the farm receive for the typical gallon of milk?
◆
How much additional revenue does the farm receive if it increases
production of milk by 1 gallon?
The last two columns in Table 14-1 answer these questions.
The fourth column in the table shows 
average revenue,
which is total revenue
(from the third column) divided by the amount of output (from the first column).
Average revenue tells us how much revenue a firm receives for the typical unit
sold. In Table 14-1, you can see that average revenue equals $6, the price of a gal-
lon of milk. This illustrates a general lesson that applies not only to competitive
firms but to other firms as well. Total revenue is the price times the quantity
(
P
Q
), and average revenue is total revenue (
P
Q
) divided by the quantity (
Q
).
Therefore, 
for all firms, average revenue equals the price of the good.
The fifth column shows