Published Oct 25, 2023 Marginal revenue (MR) is the additional revenue generated from selling one additional unit of a product or service. It represents the change in total revenue that occurs when the quantity sold changes by one unit. Marginal revenue is an important concept in economics and business decision-making, as it helps determine the optimal quantity of output to maximize profit. Let’s consider a company that sells widgets. The company currently sells 100 widgets at a price of $10 each, resulting in total revenue of $1,000. To analyze the marginal revenue, the company decides to increase the quantity of widgets sold to 101. The marginal revenue for the 101st widget can be calculated as follows: Therefore, the marginal revenue from selling the 101st widget is $1,010 – $1,000 = $10. In this example, the marginal revenue of the 101st widget is $10, which means that selling an additional widget contributes $10 to the company’s total revenue. Marginal revenue is a crucial concept for businesses to understand because it helps determine the optimal level of production and pricing strategies. By comparing marginal revenue with marginal costs, a company can assess whether it should continue increasing production or if it has reached the point of diminishing returns. Additionally, marginal revenue analysis provides insights into consumer demand and market dynamics. By adjusting prices based on marginal revenue, businesses can maximize their profits and make informed decisions about resource allocation and expansion strategies.Definition of Marginal Revenue (MR)
Example
Total revenue with 101 widgets sold = Price per widget * Quantity sold
Total revenue with 101 widgets sold = $10 * 101 = $1,010Why Marginal Revenue Matters
Economics