Revenue of a firm refers to the income generated by it through the sale of goods and services at different prices. In other words, revenue is a money that a firm earns from selling its product. The revenue concepts are concerned with Total Revenue (TR), Average Revenue (AR) and Marginal Revenue (MR). Revenue can be calculated (Guell, 2012). Revenues equal the number of units that a firm sells times the price at which it sells each unit:
Revenues = price × quantity.
If a firm increases the price of his product then it will not definitely increase the revenue of a firm because the increase in total revenue of a firm always depends upon the nature of the elasticity of demand.
A manager of a firm should always has to understand the elasticity of demand for increasing the revenue of his firm because demand elasticity is the crucial factor that determines how a price increase will affect the firm’s revenue A manager should always consider two things i.e. the elastic demand and inelastic demand to increase the revenue of a firm.
Elastic Demand
If a consumer is price sensitive then the demand is elastic. If a firm increase the price of a product it will lead to a large reduction in volume. In other words, the increase in price leads to a decrease in the quantity demanded. Thus, in this case, a firm has to keep its price low.
Inelastic Demand
If consumers do not price sensitive then the demand is regarded as inelastic where raising the product’s price will lead to a small reduction in quantity. In other words, the increase in the price leads to an increase in quantity demanded. Thus, in this case, a firm can increase its product price to increase revenue.
In conclusion, the revenue of a firm depends upon the elasticity of demand and a manager should always consider the nature of demand elasticity before setting up the price to increase revenue.
References
Guell, R. C. (2012). Issues in Economics Today (Six ed.). New York: McGraw-Hill.
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Revenue of a firm refers to the income generated by it through the sale of goods and services at different prices. In other words, revenue is a money that a firm earns from selling its product. The revenue concepts are concerned with Total Revenue (TR), Average Revenue (AR) and Marginal Revenue (MR). Revenue can be calculated (Guell, 2012). Revenues equal the number of units that a firm sells times the price at which it sells each unit:
Revenues = price × quantity.
If a firm increases the price of his product then it will not definitely increase the revenue of a firm because the increase in total revenue of a firm always depends upon the nature of the elasticity of demand.
A manager of a firm should always has to understand the elasticity of demand for increasing the revenue of his firm because demand elasticity is the crucial factor that determines how a price increase will affect the firm’s revenue A manager should always consider two things i.e. the elastic demand and inelastic demand to increase the revenue of a firm.
Elastic Demand
If a consumer is price sensitive then the demand is elastic. If a firm increase the price of a product it will lead to a large reduction in volume. In other words, the increase in price leads to a decrease in the quantity demanded. Thus, in this case, a firm has to keep its price low.
Inelastic Demand
If consumers do not price sensitive then the demand is regarded as inelastic where raising the product’s price will lead to a small reduction in quantity. In other words, the increase in the price leads to an increase in quantity demanded. Thus, in this case, a firm can increase its product price to increase revenue.
In conclusion, the revenue of a firm depends upon the elasticity of demand and a manager should always consider the nature of demand elasticity before setting up the price to increase revenue.
References
Guell, R. C. (2012). Issues in Economics Today (Six ed.). New York: McGraw-Hill.