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Marginal Revenue Formula:
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Marginal Revenue (MR) is the additional revenue generated from selling one more unit of a product or service. It represents the rate of change of total revenue with respect to quantity sold and is a fundamental concept in microeconomics and business decision-making.
The calculator uses the Marginal Revenue formula:
Where:
Explanation: The formula calculates how much additional revenue is earned for each additional unit sold, helping businesses optimize pricing and production decisions.
Details: Understanding marginal revenue is crucial for profit maximization, determining optimal production levels, setting prices, and making informed business decisions about expansion or contraction of output.
Tips: Enter the change in total revenue in dollars and the change in quantity in units. Both values must be positive numbers to calculate meaningful marginal revenue.
Q1: What does negative marginal revenue indicate?
A: Negative marginal revenue suggests that selling additional units actually decreases total revenue, which typically occurs when price reductions are necessary to sell more units.
Q2: How is marginal revenue related to price elasticity?
A: Marginal revenue is positive when demand is elastic, zero when demand is unit elastic, and negative when demand is inelastic.
Q3: When should a firm stop production?
A: A profit-maximizing firm should produce up to the point where marginal revenue equals marginal cost (MR = MC).
Q4: How does marginal revenue differ in perfect competition vs monopoly?
A: In perfect competition, MR equals price. In monopoly, MR is less than price due to the downward-sloping demand curve.
Q5: Can marginal revenue be constant?
A: Yes, in perfectly competitive markets where firms are price takers, marginal revenue remains constant and equal to the market price.