marginal revenue


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Marginal revenue

The change in total revenue as a result of producing one additional unit of output.

Marginal Revenue

The revenue that a company generates over what it previously generated for each additional unit of output. For example, suppose a company generates $1000 in revenue from 100 units of a product (in other words $10 per unit). In order to sell 101 units it may have to reduce its price to $9.99 per unit. In this case, its revenue becomes $1008.99. Thus, the marginal revenue is $8.99.

marginal revenue

The extra revenue generated by selling one additional unit of a good or service. For example, if a firm can sell 10 units of a product at a price of $25 per unit, total revenue is $250. If, in order to sell 11 units, it must reduce the price to $24, total revenue rises to 11 × $24, or $264. Thus, the marginal revenue of the 11th unit is $264 - $250, or $14.

marginal revenue

the extra revenue that is obtained by a firm from the sale of additional units of product. If firms are profit maximizers they will seek to equate marginal revenue with MARGINAL COST to establish that price output/sales combination which yields an optimal return. See BUSINESS OBJECTIVE.
Marginal revenueclick for a larger image
Fig. 119 Marginal revenue. (a) Under PERFECT COMPETITION, each extra unit of output sold adds exactly the same amount to total revenue as previous units.

Under conditions of imperfect competition (for example, MONOPOLISTIC COMPETITION) the firm faces a downward sloping demand curve and price has to be lowered in order to sell more units. Marginal revenue is less than price: as price is lowered each extra unit sold adds successively smaller amounts than previous units.

marginal revenue

the addition to TOTAL REVENUE from the sale of one extra unit of output. Under conditions of PERFECT COMPETITION, the firm faces a horizontal DEMAND CURVE at the going market price (marginal revenue = price). See Fig. 119 (a) . Marginal revenue interacts with MARGINAL COST in determining the level of output at which the firm achieves its objective of PROFIT MAXIMIZATION. See AVERAGE REVENUE, ELASTICITY OF DEMAND, KINKED DEMAND CURVE, MONOPOLY.
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ii) slope of marginal cost [greater than] slope of marginal revenue
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