How to Calculate Revenue from a Supply and Demand Curve

by James Green - Updated September 26, 2017

A firm's revenue is where its supply and demand curve intersect, producing an equilibrium level of price and quantity. Price multiplied by quantity at this point is equal to revenue. This calculation is relatively easy if you already have the supply and demand curves for the firm. If not, you must derive the supply curve as well as estimate where the demand curve intersects supply.

Graph the firm's marginal cost curve and average variable cost curve, with cost on the y-axis and quantity on the x-axis. The firm's short run supply curve will be where marginal cost is greater than average variable cost and should be upward-sloping in appearance. Marginal cost is equal to the change in total cost divided by the change in quantity of output, and average variable cost is equal to the firm's average total cost minus its average fixed cost, divided by the quantity of output. This calculation is not necessary if you already have the firm's supply curve.

Graph the demand curve for the firm's product on the same graph as the supply curve. The demand curve is largely theoretical in nature but should intersect the supply curve at some point as it is downward sloping. This point of intersection is known as the equilibrium level of quantity and price. You can therefore estimate this point by obtaining information about the price of a product.

Multiply the equilibrium price by the equilibrium quantity. This will yield the firm's revenue. Note that this number is not equal to the firm's profit, which is revenue minus costs.

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