How to Calculate Total Revenue in Economics

Total revenue is the total amount of money a company earns before accounting for any expenses. It is measured as the total amount of sales dollars received for a given quantity of goods or services.

If a firm sells more than one product, the firm's total revenue is calculated by summing the total revenue for each product. For example, a firm that sells 1,000 units for $5 each and 5,000 units for $10 each would calculate total revenue this way:

Total Revenue = (1,000 x $5) + (5,000 x $10)
Total Revenue = $5,000 + $50,000
Total Revenue = $55,000

Profit Maximization

Total revenue is an important concept in economics beyond simply calculating a firm’s income. One of the assumptions in classical economics is that profit maximization is the goal of the firm. Total revenue is used along with total cost to determine profitability and a firm’s break-even sales. Profit-maximizing firms seek to find the point where the difference between total revenue and total cost is the greatest.

It might seem that the firm, therefore, should maximize total revenue by increasing the number of units produced or the unit price. Changing these factors, however, changes the underlying supply and demand conditions of the market. As a result, profit maximization requires additional analysis of marginal revenue and marginal cost. Marginal revenue is the amount earned on the sale of one additional unit, and marginal cost is the production cost of that unit.