Marginal Revenue Calculator – Revenue Per Additional Unit
Calculate the revenue from selling one additional unit of output
Table of Contents
How to Use
- Enter your initial total revenue
- Enter your final total revenue after increasing sales
- Enter the initial quantity sold
- Enter the final quantity sold
- Click calculate to see your marginal revenue per unit
What is Marginal Revenue?
Marginal revenue is the additional revenue earned from selling one more unit of a good or service. It's a key concept in economics that helps businesses determine optimal pricing and production levels.
Formula: Marginal Revenue = Change in Total Revenue ÷ Change in Quantity
Marginal Revenue in Different Markets
Marginal revenue behaves differently depending on market structure:
- Perfect Competition: MR equals price (constant)
- Monopoly: MR is less than price and decreases with quantity
- Oligopoly: MR depends on competitor reactions
- Monopolistic Competition: MR is less than price due to downward-sloping demand
Profit Maximization Rule
The profit-maximizing output level occurs where marginal revenue equals marginal cost (MR = MC):
- If MR > MC: Increase production to increase profit
- If MR < MC: Decrease production to increase profit
- If MR = MC: Optimal production level achieved
- This rule applies to all market structures
Relationship with Price Elasticity
Marginal revenue is related to price elasticity of demand:
- Elastic demand (E > 1): MR is positive, lowering price increases revenue
- Unit elastic (E = 1): MR is zero, revenue is maximized
- Inelastic demand (E < 1): MR is negative, raising price increases revenue
- Formula: MR = P × (1 - 1/E) where E is elasticity
Frequently Asked Questions
- What's the difference between marginal revenue and average revenue?
- Marginal revenue is the revenue from selling one additional unit, while average revenue is total revenue divided by total quantity (which equals price). In perfect competition, MR equals AR. In imperfect competition, MR is typically less than AR.
- Why does marginal revenue decrease in a monopoly?
- In a monopoly, the firm faces the entire market demand curve. To sell more units, it must lower the price on all units sold. This means each additional unit adds less to total revenue than the previous one, causing MR to decrease.
- Can marginal revenue be negative?
- Yes, marginal revenue can be negative when demand is inelastic. This occurs when lowering the price to sell one more unit reduces total revenue because the price decrease on all units outweighs the revenue from the additional sale.
- How do I use marginal revenue for pricing decisions?
- Compare MR to marginal cost. If MR > MC, you can increase profit by producing more. If MR < MC, reduce production. For optimal pricing, find the quantity where MR = MC, then set the price that consumers will pay for that quantity.