Published Jan 2, 2023 Marginal revenue (MR) is defined as the additional revenue a company earns by selling one additional unit of a good or service. That means it is the change in total revenue that results from a one-unit increase in output. In most cases, MR is equal to the price of a good or service. To illustrate this, let’s look at an imaginary company called Widget Inc. that produces and sells widgets. Widget Inc.’s total revenue adds up to USD 10,000 if it sells 1,000 widgets. If the company manages to increase its output by one widget (i.e., sell 1,001 widgets), its total revenue increases to USD 10,100. Thus, the marginal revenue of the 1,001st widget is USD 100. Note that USD 100 is also the price of the widget in question. That means MR is the same for all widgets sold at that price. It only changes if the price changes or if buyers get special discounts. The concept of marginal revenue is important in both economics and business. It is used to calculate the optimal level of production for a company. That means it helps companies to determine the most profitable level of output.Definition of Marginal Revenue
Example
Why Marginal Revenue Matters
In addition, marginal revenue is also used to calculate the marginal cost of production. That is the additional cost a company incurs when it produces one additional unit of a good or service. By comparing the marginal cost and revenue of a product, companies can determine the most profitable level of production.
Economics