Revenue and Profit Calculations Revision Notes | GCSE AQA Economics
Profit = total revenue − total costs, where total revenue = price × quantity sold. Free GCSE AQA Economics notes with worked examples and 13 questions answered.
Updated 6 Mar 2026 · Revise Right Team
Revenue and Profit Calculations is part of Production, costs, revenue and profit in GCSE AQA Economics.
4 min
Reading time
44
Lessons in this topic
GCSE AQA
Pathway
Reviewed by Revise Right
Content review
What this lesson covers
Profit = total revenue − total costs, where total revenue = price × quantity sold. Free GCSE AQA Economics notes with worked examples and 13 questions answered.
Define total revenue, average revenue, and profit using precise economic terminology
Calculate total revenue and average revenue from given price and quantity data
Apply the formula total revenue minus total costs to calculate profit
Explain how a firm can increase profit by reducing average costs and/or increasing revenues
Key ideas to keep in view
Use this lesson to stay inside Production, costs, revenue and profit while connecting the detail back to the wider How markets work topic.
How markets work
Production, costs, revenue and profit
GCSE AQA Economics
Revision notes
Read the core explanations from Revenue and Profit Calculations before testing yourself from memory.
1. Why Revenue and Profit Matter
Every business decision — from setting a price to hiring staff — ultimately comes back to one question: is the firm making money? Revenue and profit are the two numbers that answer it.
At GCSE, you need to do more than define these terms. Examiners expect you to calculate them, interpret them, and explain how a firm can improve its financial position. This lesson builds all three skills from the ground up.
2. Types of Revenue
Revenue is the income a firm earns from selling goods or services — before any costs are taken away. There are two types you need to know: total revenue and average revenue.
Think of a market stall selling handmade candles at £5 each. If the stall sells 200 candles on a Saturday, total revenue is £5 × 200 = £1,000. That £1,000 is the money coming in — nothing has been deducted yet.
Using the candle example: AR = £1,000 ÷ 200 = £5. Notice that AR equals the price charged. This is always true when a firm sells every unit at the same price — a useful cross-check in the exam.
3. Calculating Total and Average Revenue
Knowing the formulas is the starting point. The exam will give you data — a price, a quantity, or a revenue figure — and ask you to calculate or interpret. The worked example below shows the method you should follow every time.
Worked example: Calculating TR and AR from Price and Quantity Data
A sports shop sells 350 pairs of trainers at £60 each. Calculate (a) total revenue and (b) average revenue.
$TR = P \times Q$ — Always state the formula first — this earns a method mark even if arithmetic slips later.
$TR = £60 \times 350$ — P = £60, Q = 350. Substitute carefully — do not mix up price and quantity.
$TR = £60 \times 350 = £21,000$ — 60 × 350: first 60 × 300 = 18,000, then 60 × 50 = 3,000. Total = 21,000. Always show the multiplication step.
$AR = \frac{TR}{Q}$ — Now use the TR result to find average revenue per unit.
$AR = \frac{£21,000}{350} = £60$ — AR = £60, which equals the selling price. This confirms the answer — AR always equals price when every unit sells at the same price.
Answer: (a) Total Revenue = £21,000. (b) Average Revenue = £60 per unit.
4. Profit: Connecting Revenue and Costs
Revenue tells you what a firm earns. Profit tells you what it keeps. The gap between the two is total costs — wages, rent, raw materials, energy, and everything else the firm spends to produce its output.
Returning to the sports shop: if total revenue is £21,000 and total costs (wages, stock, rent) are £14,500, then profit = £21,000 − £14,500 = £6,500. That £6,500 is what the owner actually gains from trading.
5. How Firms Increase Profit
Now that the profit formula is clear, the next question is: how does a firm actually improve its profit? There are two routes, and the AQA specification requires you to know both.
Increase total revenue — by raising price (if demand allows) or by selling a greater quantity
Reduce average costs — by producing more efficiently, negotiating better supplier deals, or benefiting from economies of scale
Consider a coffee shop with TR of £80,000 and TC of £70,000, giving a profit of £10,000. The owner could increase profit by raising prices from £3.00 to £3.20 per cup — boosting TR — or by switching to a cheaper milk supplier, cutting TC. Either move widens the gap between revenue and costs.
Reducing average cost (AC) is particularly powerful because it improves profit on every single unit produced. If AC falls from £2.80 to £2.60 per cup and the shop sells 10,000 cups a year, total costs fall by £2,000 — adding directly to profit without changing the selling price at all.
6. Worked Profit Calculation
Exam questions often combine revenue and profit in a single multi-step calculation. The walkthrough below models the approach that earns full method marks.
Worked example: Full Revenue and Profit Calculation
Priya runs a clothing business. She sells 600 jackets at £45 each. Her total costs are £22,500. Calculate (a) total revenue, (b) average revenue, and (c) profit.
$TR = P \times Q = £45 \times 600$ — State the formula, then substitute. P = £45, Q = 600.
$£45 \times 600 = £45 \times 6 \times 100 = £270 \times 100 = £27,000$ — Breaking 600 into 6 × 100 makes the multiplication manageable. TR = £27,000.
$AR = \frac{TR}{Q} = \frac{£27,000}{600} = £45$ — AR = £45, which equals the selling price — confirming the calculation is consistent.
$\text{Profit} = TR - TC = £27,000 - £22,500$ — Subtract total costs from total revenue using the profit formula.
$£27,000 - £22,500 = £4,500$ — Profit = £4,500. Because TR > TC, Priya's business is profitable.
Answer: (a) TR = £27,000. (b) AR = £45 per unit. (c) Profit = £4,500.
7. Exam Technique and Common Mistakes
Revenue and profit questions are among the most straightforward marks available on Paper 1 — but only if you avoid the traps that cost students marks every year. The guidance below is drawn directly from the types of errors that appear in AQA mark schemes.
Revenue and profit calculations sit at the heart of AQA Paper 1's production and costs topic. Master the three formulas — TR = P × Q, AR = TR ÷ Q, and Profit = TR − TC — and you have the quantitative foundation for every question in this area.
Sources and content standards
Published by Revise Right. Use the official specification reference to check the requirements for your course. Content updated: 2026-03-06.
Profit is calculated as total revenue minus total costs: Profit = TR − TC. When TR is greater than TC, the firm makes a profit; when TC is greater than TR, it makes a loss. For example, TR of £27,000 minus total costs of £22,500 gives a profit of £4,500.
How do you calculate total revenue?
Total revenue is calculated by multiplying the price charged per unit by the number of units sold: TR = Price × Quantity. For example, a sports shop selling 350 pairs of trainers at £60 each has total revenue of £60 × 350 = £21,000.
What is the difference between revenue and profit?
Revenue is the income a firm earns from selling goods or services before any costs are taken away, while profit is what it keeps after total costs are subtracted. If a sports shop's total revenue is £21,000 and its total costs are £14,500, its profit is £6,500.
What is average revenue?
Average revenue is the revenue earned per unit sold, calculated as total revenue divided by quantity sold: AR = TR ÷ Quantity. When a firm sells every unit at the same price, AR equals the price, so £21,000 ÷ 350 trainers gives AR = £60.
What is revenue in economics?
Revenue is the income a firm earns from selling goods or services, before any costs are taken away. There are two types: total revenue, which is price × quantity, and average revenue, which is the revenue earned per unit sold.
How do you calculate profit from price, quantity and total costs?
Profit is calculated by first finding total revenue as price × quantity, then subtracting total costs. A clothing business selling 600 jackets at £45 each has TR = £45 × 600 = £27,000, and with total costs of £22,500, profit = £27,000 − £22,500 = £4,500.
How can a firm increase profit?
A firm can increase profit by increasing total revenue, by raising price if demand allows or selling a greater quantity, or by reducing average costs, by producing more efficiently, negotiating better supplier deals or benefiting from economies of scale. Either move widens the gap between revenue and costs.
Why does average revenue equal price?
Average revenue equals price when a firm sells every unit at the same price, because AR = TR ÷ Quantity and TR = Price × Quantity. A sports shop selling 350 pairs of trainers at £60 each has TR of £21,000 and AR of £21,000 ÷ 350 = £60, the selling price.
What is the difference between total revenue and average revenue?
Total revenue is the entire income received from sales, calculated as price × quantity, while average revenue is the revenue earned per unit sold, calculated as total revenue ÷ quantity. A market stall selling 200 candles at £5 each has total revenue of £1,000 and average revenue of £5.
When does a firm make a loss?
A firm makes a loss when total costs are greater than total revenue (TC > TR). When TR > TC the firm makes a profit, because profit is the surplus remaining when total costs are subtracted from total revenue: Profit = TR − TC.
How does reducing average cost increase profit?
Reducing average cost increases profit because it improves profit on every single unit produced. If a coffee shop's average cost falls from £2.80 to £2.60 per cup and it sells 10,000 cups a year, total costs fall by £2,000, adding directly to profit without changing the selling price.
Does raising prices always increase profit?
Raising prices increases total revenue only if demand allows, so it is one route to higher profit but not the only one. A coffee shop could raise prices from £3.00 to £3.20 per cup to boost TR, or cut costs by switching to a cheaper milk supplier; either move widens the gap between revenue and costs.
What are the three formulas for revenue and profit?
The three formulas for revenue and profit are TR = P × Q, AR = TR ÷ Q, and Profit = TR − TC. Total revenue is price multiplied by quantity, average revenue is total revenue divided by quantity, and profit is total revenue minus total costs.