R, AR, MR
TITLE: A Mathematical and Graphical Analysis of Revenue Concepts in
Economics: A Study of R, AR, and MR using Calculus
Introduction:
AIMS & OBJECTIVES:
Aims:
● To understand and sketch the curves of Total Revenue (R), Average
Revenue (AR), and Marginal Revenue (MR).
● To analyze their interrelationships using both graphical and mathematical
methods.
● To apply the principles of calculus such as increasing/decreasing functions,
and maxima/minima to interpret revenue behavior.
Objectives:
● Demonstrate how AR and MR derive from the TR curve.
● Use first and second derivatives to find critical points (maxima/minima).
● Highlight the difference in revenue behavior under different market
conditions (perfect vs. imperfect competition).
● Visually interpret economic behavior through calculus-based models.
PREVIOUS KNOWLEDGE:
Basic Revenue Concept
I understood that revenue is the income a seller or business earns by selling
goods or services. It is calculated by multiplying the price per unit by the number
of units sold.
Linear Equations and Functions
From mathematics, I knew how to work with linear and quadratic functions, plot
graphs, and interpret slopes—all of which are essential to understand how
revenue behaves.
Differentiation
I had learned the basic rules of differentiation, including how to find the first
derivative of a function. I knew that the derivative tells us the rate at which a
function is changing and can help identify increasing or decreasing behavior.
Concept of Slope
I was familiar with the idea that the slope of a curve at a point (i.e., the derivative)
represents the steepness or rate of change—this helped me understand marginal
revenue as the slope of the total revenue curve.
Understanding of Perfect and Imperfect Competition
From economics, I had an idea of how firms behave in different market
structures. For instance, in perfect competition, price remains constant, whereas
in monopoly, price decreases as output increases—this affects AR and MR curves.
Graphical Interpretation
I could interpret basic economic graphs like demand and supply curves. This
helped me visualize how Total Revenue (TR), Average Revenue (AR), and
Marginal Revenue (MR) change with output.
Introduction:
There are three types of revenue – total revenue, average revenue and marginal
revenue. The income earned by a seller or producer after selling the output is
called the total revenue. In fact, total revenue is the multiple of price and output.
The behaviour of total revenue depends on the market where the firm produces
or sells. Average revenue refers to the revenue obtained by the seller by selling
the per unit commodity. It is obtained by dividing the total revenue by total
output. Marginal revenue is the net revenue obtained by selling an additional
unit of the commodity.
Competitive Market Condition:
In total revenue curve, the sales and total revenue are increasing in the same
proportion because the firms under a perfectly competitive market sells its
outputs at the given market price. The total revenue is measured along the y-axis
and volume of sales is measured along the x-axis. The total revenue curve is an
upward sloping straight line from the origin which indicates that there is a
proportional and positive relationship between the rates of total revenue and
output. Total Revenue is zero if the sales are zero or if there are no sales. The
proportionality is the result of the constant price in a perfectly competitive
market
AR = Total Revenue/Quantity sold = p.x/x = P(Price).
Relationship between total revenue, average revenue and marginal revenue in
a perfectly competitive market are as follows:
1. Total revenue raises at the rate of average revenue or marginal revenue
for all level of sales. It indicates that in the first unit of sale, total revenue,
average revenue and marginal revenue are equal.
2. Average revenue and marginal revenue are equal and constant for all
level of sales.
3. Average revenue and marginal revenue are equal to the price.
SCALE
100
X AxIS- 2cm = lunLt
TR
Y AXIS-2cm =20 wnity
REVENVE
ТЫТАAL
10
4
X
2 3 6
QUANTITY
OR
OUTPUT
Graph illustrating the TR curve inaperfectly competitive market
SCALE
X AXIS -2cm =ludit
Y AxIS-1m=5units
MARGINAL REVENUE
PAR=MR
&
101
5+
+
° 2
UNITS OF OUTPUT
Graph illustrating AR and MR curve inaperfectly competitive market
Monopoly Condition
Under monopoly, both average revenue and marginal revenue curves are
negatively sloping, whereas, marginal revenue curve remains below the average
revenue curve at every positive quantity. A monopoly market is a market which
has only one seller of a commodity which has no close substitutes. Since the
demand curve of a monopoly is downward sloping, the monopoly seller must
reduce the price to sell more quantities of the product.
Marginal revenue = p + x(dp/dx)
Since the demand curve is negatively sloping, dp/dx < 0 = MR < p = MR < AR (as
we know, p = AR)
The total, average and marginal revenue of a monopoly market are illustrated in
the table below
In the table above, the total revenue is found by multiplying the amounts of
outputs by the marked price.
From the table, we find that revenue is increasing up to the 4th unit of output and
then it is decreasing. The price(p) and quantity sold(x) are moving in the opposite
directions. Up to the 4 th unit of output, the positive contribution of the quantity
increasing sales is stronger on total revenue than the negative contribution of
declining price. However, the negative contribution of declining price outweighs
the positive contribution of quantity sold on total revenue from the 6th unit of
sales which results in the decline of the total revenue from the 6th unit of output.
The average revenue is the per unit revenue of the monopolist.
AR = Total revenue/Quantity sold = px/x = p
Marginal revenue is the revenue is the change in total revenue corresponding to
the change in quantity sold and it is found by dividing the change in total revenue
by the change in the quantity sold.
REAL-LIFE APPLICATION
● Businesses use MR to determine optimal output—they stop producing
when MR = MC (Marginal Cost).
● Understanding revenue behavior helps in pricing strategies, especially
under monopoly or imperfect competition.
● Helps firms identify the point of maximum profitability and avoid
overproduction.
● MR turning negative means additional production is harmful to revenue,
guiding firms to limit supply.
OBSERVATIONS:
● Total Revenue (TR) increases as more units are sold but eventually reaches
a maximum before declining.
● Average Revenue (AR) shows how much revenue is earned per unit; in
monopoly/monopolistic settings, AR declines with output.
● Marginal Revenue (MR) indicates how much extra revenue is gained by
selling one more unit; it eventually becomes zero or negative.
INCREASING & DECREASING FUNCTIONS
Introduction:
In the world of mathematics, understanding how functions behave is essential to
analyzing real-world phenomena and solving complex problems. One of the most
fundamental tools in this analysis is the concept of increasing and decreasing
functions. These functions help us determine how a quantity changes as its
input varies—whether it rises, falls, or remains constant.
In this project, we explore the idea of increasing and decreasing functions using
both algebraic and graphical approaches. A function is said to be increasing if its
output grows as the input increases, and decreasing if the output diminishes
with increasing input. These concepts are not just abstract ideas but are closely
tied to real-life applications in economics, physics, biology, and engineering.
Using the principles of differential calculus, particularly the first derivative, we
can determine where a function increases or decreases. If the first derivative of a
function is positive over an interval, the function is increasing in that interval;
if it is negative, the function is decreasing.
Previous Knowledge:
i) What are Functions?
A function is a rule or relationship that assigns each input exactly one output. It
is usually written as:
f(x)=some expression in x\mathbf{f(x)} = \text{some expression in } xf(x)=some
expression in x
● The domain is the set of all possible inputs.
● The range is the set of all possible outputs.
Example:
A function is often visualized on the xy-plane as a curve or line where no vertical
line intersects it more than once (Vertical Line Test).
ii) What are Derivatives (First Principle)?
A derivative represents the rate of change of a function with respect to a variable.
It tells us how a function is changing at any point.
The First Principle of Derivatives (also called definition of derivative) is:
f′(x)=limh→0f(x+h)−f(x)h\mathbf{f'(x)} = \lim_{h \to 0} \frac{f(x+h) -
f(x)}{h}f′(x)=h→0limhf(x+h)−f(x)
This formula gives the slope of the tangent to the curve at point xxx.
iii) What are Slopes and Tangents?
● The slope of a curve at a point indicates how steep the curve is at that
point.
● A tangent is a straight line that touches the curve at a single point without
crossing it (locally).
The slope of the tangent at a point is given by the derivative at that point:
Slope=f′(x)
If:
● f′(x)>0, the function is increasing at that point.
● f′(x)<0, the function is decreasing at that point.
Concept of Increasing & Decreasing Functions
1. Increasing Function
A function f(x)f(x)f(x) is said to be an increasing function on an interval III if:
👉 This means the function does not decrease; it either stays the same or
increases as x increases.
2. Decreasing Function
A function f(x)f(x)f(x) is said to be a decreasing function on an interval III if:
👉 This means the function does not increase; it either stays the same or
decreases as xxx increases.
3. Strictly Increasing Function
A function f(x)f(x)f(x) is said to be strictly increasing on an interval III if:
👉 This means the function always increases as x increases—no flat (constant)
sections are allowed.
4. Strictly Decreasing Function
A function f(x)f(x)f(x) is said to be strictly decreasing on an interval III if:
👉 This means the function always decreases as xxx increases—again, no
constant values allowed.
These definitions are often tested using the first derivative test:
How Derivates are Used to Find Whether The Function is Increasing or
Decreasing Function
Consider a function y = f(x) assuming it is differentiable at an interval (a,b). To
determine if the function is increasing or decreasing on the interval, we use the
sign of the derivative of the function.
In order for the function y = f(x) to be increasing on the interval (a,b), it is
necessary and sufficient that first derivative of the function be non-negative
everywhere in this interval:
A similar criteria applies to the case of a function that is decreasing on the
interval (a,b):
The same procedure is used to find the maximum or minimum area or volume of
a given object.
Calculation of Intervals of Increasing and Decreasing Functions:
To calculate the intervals of increasing or decreasing functions, we need to follow
some steps:
I) First of all, we have to differentiate the given function
II) Then solve the first derivative of the equation, to the value of x
The first derivative :- f(x) = 0
III) Form open intervals with the values of x, which we got after solving the first
derivative and the points of discontinuity
IV) Take a value from every interval and find the sign they have in the first
derivative:
If f(x) > 0, it’s increasing
If f(x) < 0, it’s decreasing
Geometrical Significance:
1. If f′(x)>0: Function is Increasing
● Geometrical Meaning:
The slope of the tangent line to the curve at any point is positive.
● The tangent line rises from left to right.
● The curve is going upward as we move along the x-axis.
● Example: The function f(x)=x^2 is increasing for x>0, and the tangent
slopes upward there.
2. If f′(x)<0: Function is Decreasing
● Geometrical Meaning:
The slope of the tangent to the curve at any point is negative.
● The tangent line falls from left to right.
● The curve is going downward as we move along the x-axis.
● Example: The function f(x)=x2 is decreasing for x<0, and the tangent slopes
downward there.
3. If f′(x)=0: Possible Turning Point (Maxima/Minima or Constant)
● Geometrical Meaning:
The tangent to the curve is horizontal at that point.
● The function may have:
○ A local maximum (peak)
○ A local minimum (valley)
○ Or a point of inflection (curve changes direction but no extremum)
● Further investigation using the second derivative is often needed to
confirm.
4. Monotonicity Based on Derivative Sign
● If f′(x) retains the same sign (either positive or negative) throughout an
interval:
○ The function is monotonic in that interval.
○ Positive sign ⇒ Strictly Increasing
○ Negative sign ⇒ Strictly Decreasing
Examples:
Q) Find the intervals of increase and decrease of the function f(x) = x^3 - 3x + 2
Solution:
I Find the derivative: f'() = 3x-3
IⅡ Solve it to zow : 3x-30
3(2-1)
2-1-0
:x:-1 and x=1
[Link] wt have to chode the sigs of forut abriostive
in every interval to find the function is incresing
te dewasing:
i) On the interwval (0s,-1):
Let x=-2 f(2) 3(-2)-3
12-3
৭0
1) On the interwal (-1,1):
Lit x=0 fl0) =3(0)-3
-3<
il) On the interool (1, a):
Lt x 2 f'6) =12-3
3()-3
90
Hence, the furction is.
Increasing interuels: (00,-1)and (1,0)
in the
Decreasing inthe interued : (-1.1)
Conclusion:
This project explores the concepts of increasing and decreasing functions
through graphical and mathematical analysis using derivatives. It explains how
the sign of the first derivative f′(x)f'(x)f′(x) determines whether a function is
rising, falling, or stationary. The geometrical interpretation, shown through
tangent lines, helps visualize function behavior: a positive slope indicates
increasing, a negative slope indicates decreasing, and zero slope indicates a
potential maximum, minimum, or constant section. The project integrates
calculus principles with real-life relevance, enhancing the understanding of
function behavior and supporting analytical thinking in both mathematical and
applied contexts.