Average revenue is how much money, on average, a business makes for each thing it sells. If a lemonade stand makes $100 from selling 50 cups, then the average revenue is $2 per cup.
What’s on This Page?
This page has a calculator to find average revenue, easy formulas, step-by-step instructions, examples, questions and answers, and more about average revenue.
Calculator
Formula
Average Revenue (AR) = Total Revenue (TR) ÷ Quantity Sold (Q)
Where:
- Total Revenue (TR) is is all the money made from selling things.
- Quantity Sold (Q) is how many things were sold.
How to Calculate Average Revenue – step by step
Step 1 – Find the total revenue (TR). This is all the money the business made from selling its products or services.
Step 2 – Find how many things were sold (Q). This could be cups of lemonade, toys, or anything the business sells.
Step 3 – Calculate the average revenue (AR). Divide the total revenue by the number of things sold to get the average revenue.
Example
A coffee shop makes $120,000 selling 20,000 cups of coffee in one month.
Step 1: Total Revenue (TR) = $120,000
Step 2: Number of cups sold (Q) = 20,000
Step 3: Calculate Average Revenue (AR): $120,000 ÷ 20,000 = $6
Result: the average revenue is $6 per cup. Each cup, on average, brought in $6.
What is Average Revenue?
Average revenue is how much, on average, a business earns for each thing it sells. It’s found by dividing the total revenue by the number of items sold. For example, if a store sells 100 toys for a total of $1,000, the average revenue is $10 per toy.
Marginal Revenue vs. Average Revenue
Marginal revenue is the extra money made from selling one more item. If selling one more cup of lemonade brings in $2, that’s the marginal revenue.
Average revenue is the average money made from each item sold. If a stand sells 100 cups for $200 total, the average revenue is $2 per cup.
Total Revenue vs. Average Revenue
Total revenue is the total money the business makes from selling everything.Average revenue is how much each item brings in on average.
AR Tables
Based on $1,000,000 of total revenue
| Units Produced | Average Revenue |
| 1 | $1,000,000 |
| 10 | $100,000 |
| 100 | $10,000 |
| 1,000 | $1,000 |
| 5,000 | $200 |
| 10,000 | $100 |
| 50,000 | $20 |
| 100,000 | $10 |
| 500,000 | $2 |
| 1,000,000 | $1 |
FAQs
Q: Is average revenue the same as price?
A: Most of the time, yes. If everything is sold for the same price, average revenue is the same as the price. If some items are sold at different prices (like discounts), average revenue is the average of those prices.
Q: Can average revenue be negative?
A: No, because it’s the money earned per item sold, which can’t be negative. Even if items are sold at a loss, the revenue itself is always positive.
Sources and more resources
- Kacapyr, E., & Redelsheimer, J., & Musgrave, F. Barron’s AP Microeconomics / Macroeconomics (6th ed.). (2018). United States of America: Barron’s. ISBN: 978-1-4380-1065-6. Page 94.
- Pindyck, R., & Rubinfeld, D., Microeconomics (8th ed.), (2013). United States of America: Pearson. ISBN 13: 978-0-13-285712-3. Page 358.
- Greenlaw, S., & Shapiro, D., Principles of Microeconomics 2e. (2018). Houston: Rice University OpenStax. ISBN 13: 978-1-947172-35-7. Page 171.
- Nitisha. (2015, August 11). Average revenue and marginal revenue calculation. Economics Discussion. https://www.economicsdiscussion.net/revenue/average-revenue-and-marginal-revenue-calculation/3683