Economics: Calculating Total Revenue

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In this lesson, we introduce and calculate total revenue for a firm. Total revenue is equal to the price of the product you are selling times the quantity of the product that you are able to sell: price times quantity equals total revenue. Let's see what the total revenue would be for a firm that makes television sets, when they sell different quantities of their product.
Let's suppose, for the sake of this example, that televisions sell for a price of $500 each; price times quantity equals total revenue. If the firm sells no television sets, it makes no total revenue. If, however, it sells a single television set, price times quantity equals $500, that's total revenue. Multiply that price by two television sets and you get a $1000, multiply it by 3 and you get $1500, and so forth, all the way up to any quantity of televisions you want to consider. $500 times 7 television sets equals total revenue of $3500.
We can take the information from this total revenue table and plot it in a diagram to get a total revenue curve for the firm selling televisions. Let's plot each revenue quantity combination. For instance, if we are selling no television sets, our total revenue will equal zero, and that's going to be our intersect point. A single television set at $500 gives us total revenue of $500--two times 500 is a 1000, 3 times 500 is 1500, and so forth. We move through space multiplying quantity times price until we have got a series of points that relate the quantity of television sets that we sell with the amount of total revenue that the firm earns, at a price of $500 per television.
Any time we have got a collection of points, it occurs to us to connect them and form a curve. Let's see if that make sense in this case. For instance, the horizontal axis in this diagram tells us the number of television sets that our firm is selling in any given period, say per week. Now does it make sense for us to think about the possibility of fractional television sets sold? That is, what would it mean to talk about selling one and a half television sets per week? Well, think about it. It just means that you are selling 3 television sets every 2 weeks, 3 divided 2 is one and a half. With that idea in mind, it makes sense to think about fractional televisions sold, and we can connect these dots then to form a smooth curve which we call total revenue. The total revenue curve shows you for any given quantity of television sets sold in a period how much total revenue the firm earns.
Now, what about the slope of the total revenue curve? The slope of the curve is just the rise over the run. And notice here what you get: 500/1, 1000/2, 1500/3. The ratio of the rise to the run is simply the price of a television set, or $500. If the price of a television set were to go up, then the curve would simply get steeper.
We now have a representation of the firm's total revenue possibilities, a map that shows how much revenue the firm earns for any given quantity of sales.
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