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IGCSEEconomicsCambridge (CIE)Revision Notes3. Microeconomic Decision-Makers3.6 Firms' Costs, Revenue & ObjectivesRevenue

Syllabus Edition

First teaching 2025

First exams 2027

Revenue (Cambridge (CIE) IGCSE Economics): Revision Note

Exam code: 0455 & 0987

Steve Vorster

Written by: Steve Vorster

Reviewed by: Lisa Eades

Updated on

Definition of revenue

  • Revenue is the income a firm earns from selling its goods or services over a period of time

1. Total revenue (TR)

  • The total amount of money received from selling all output

    • Some firms sell a single product and it is easy to calculate their revenue

    • Other firms may sell thousands of products and revenue calculations can be more complex

    Total space revenue space open parentheses TR close parentheses space equals space Selling space price space open parentheses straight P close parentheses space straight x space Quantity space sold space open parentheses straight Q close parentheses

  • If a firm sells 200 units at $5 each,

    TR = 5×200 = $1,000

2. Average revenue (AR)

  • The revenue earned per unit sold

    Average space revenue space left parenthesis AR right parenthesis space equals space TR over straight Q

  • Since AR = TR ÷ Q, and TR = P × Q, it follows that average revenue = price per unit

  • If TR is $1,000 from selling 200 units,

    AR = 1000 / 200 = $5

  • Average revenue information is especially useful to a firm selling multiple products (e.g. supermarkets) or a firm that sells the same item at different prices

    • For example, rail tickets are usually priced differently for different types of commuters such as students and pensioners

Worked Example

Calculate the average revenue a firm will earn when the price changes by $1 from $1 to $8

P ($)

Q

TR begin mathsize 14px style left parenthesis straight P cross times straight Q right parenthesis end style

AR space TR over straight Q

8

1

8

8

7

2

14

7

6

3

18

6

5

4

20

5

4

5

20

4

3

6

18

3

2

7

14

2

1

8

8

1

The influence of sales on revenue

  • A firm’s revenue is directly influenced by the number of units it sells, making sales volume a key driver of total revenue (TR)

How sales affect total revenue (TR)

  • Total revenue = price × quantity sold

  • This means that an increase in the number of units sold (sales volume) will increase TR, assuming the price per unit stays the same

  • Conversely, if sales fall, total revenue will decrease, even if the price remains unchanged

Impact of price changes on sales

  • In elastic markets, a fall in price may lead to a large rise in sales, significantly boosting revenue

  • In inelastic markets, lowering price may have little effect on sales volume, so revenue is able to increase

  • Gain more understanding of the revenue rule by reading the notes on PED and total revenue

Importance in business decisions

  • Understanding the relationship between sales volume and revenue helps businesses set pricing strategies, plan output, and forecast profits

  • A firm may choose to increase advertising or reduce prices to boost sales and therefore increase revenue, but only if demand is responsive

Case Study

Apple’s iPhone Pricing and Sales Strategy

In 2023, Apple released a new line of iPhones at a lower entry-level price than its previous generation. This move aimed to boost global sales, especially in emerging markets where consumers were more price sensitive.

Illustration of a blue smartphone labelled "iPhone 15" with dual cameras, next to a large, stylised apple logo on a white background.

Outcome

  • Unit sales increased significantly, particularly in India and Southeast Asia

  • Although the average price per unit fell, Apple’s total revenue increased due to the much higher quantity sold

  • The strategy worked because demand for Apple’s products in these markets was relatively price elastic

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    Author
    Reviewer
    Steve Vorster

    Author: Steve Vorster

    Expertise: Economics & Business Subject Lead

    Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.

    Lisa Eades

    Reviewer: Lisa Eades

    Expertise: Business Content Creator

    Lisa has taught A Level, GCSE, BTEC and IBDP Business for over 20 years and is a senior Examiner for Edexcel. Lisa has been a successful Head of Department in Kent and has offered private Business tuition to students across the UK. Lisa loves to create imaginative and accessible resources which engage learners and build their passion for the subject.