Marginal Revenue Calculator
Calculate the additional revenue generated from selling one more unit (Marginal Revenue, MR) using changes in Total Revenue (ΔTR) and Quantity Sold (ΔQ).
Input Values
Understanding Marginal Revenue
What is Marginal Revenue?
Marginal Revenue (MR) is the increase in total revenue from selling one additional unit of a good or service. It helps businesses optimize pricing and production levels.
Formula
MR = ΔTR / ΔQ
Where:
- ΔTR = Change in Total Revenue (in dollars, $)
- ΔQ = Change in Quantity Sold (units)
Key Concepts
- Perfect Competition: MR = Price (since firms are price takers).
- Monopoly/Monopolistic Competition: MR decreases as quantity increases due to downward-sloping demand curves.
- Break-even Point: MR = Marginal Cost (MC) for profit maximization.
Practical Examples
Example 1: Basic Calculation
Scenario: Selling 10 more units increases revenue by $500.
ΔTR: $500
ΔQ: 10 units
MR = 500 / 10 = $50 per unit
Example 2: Perfect Competition
Scenario: A farmer sells wheat at $5/bushel. Selling 100 more bushels earns $500.
ΔTR: $500
ΔQ: 100 bushels
MR = 500 / 100 = $5 (equal to price)
Example 3: Monopoly Pricing
Scenario: A tech firm sells 1,000 gadgets at $200 each. Lowering the price to $190 increases sales to 1,050 units.
ΔTR: (1,050 × $190) - (1,000 × $200) = $199,500 - $200,000 = -$500
ΔQ: 50 units
MR = -500 / 50 = -$10 per unit (Negative MR means revenue decreases per additional unit sold.)
Example 4: Service Industry
Scenario: A gym sells 50 new memberships at $30/month, increasing revenue by $1,500.
ΔTR: $1,500
ΔQ: 50 memberships
MR = 1,500 / 50 = $30 per membership
Example 5: Negative Marginal Revenue
Scenario: A bakery sells 100 cakes at $20 each. Increasing production to 120 cakes requires lowering the price to $18, reducing total revenue.
ΔTR: (120 × $18) - (100 × $20) = $2,160 - $2,000 = $160
ΔQ: 20 cakes
MR = 160 / 20 = $8 per cake (Lower than original price due to price reduction.)
Example 6: Break-even Analysis
Scenario: A company’s MR is $25/unit, and Marginal Cost (MC) is $25/unit.
Decision: Profit is maximized at this output level (MR = MC).
Example 7: Subscription Model
Scenario: A streaming service gains 1,000 new subscribers at $10/month, increasing revenue by $10,000.
ΔTR: $10,000
ΔQ: 1,000 subscribers
MR = 10,000 / 1,000 = $10 per subscriber
Example 8: Bulk Discounts
Scenario: A wholesaler sells 500 units at $50 each. Offering a discount for 600 units at $45 each changes revenue.
ΔTR: (600 × $45) - (500 × $50) = $27,000 - $25,000 = $2,000
ΔQ: 100 units
MR = 2,000 / 100 = $20 per unit (Lower than original price due to discount.)
Example 9: Zero Marginal Revenue
Scenario: A firm’s total revenue doesn’t change despite selling more units (rare).
ΔTR: $0
ΔQ: 10 units
MR = 0 / 10 = $0 per unit (No additional revenue.)
Example 10: Dynamic Pricing
Scenario: An airline sells 10 more tickets at $300 each, increasing revenue by $3,000.
ΔTR: $3,000
ΔQ: 10 tickets
MR = 3,000 / 10 = $300 per ticket
Frequently Asked Questions
1. What is Marginal Revenue (MR)?
MR is the additional revenue earned from selling one more unit of a product or service.
2. How is MR different from Average Revenue (AR)?
AR = Total Revenue / Quantity Sold. MR focuses on incremental changes, while AR is an average.
3. Can MR be negative?
Yes, if selling more units requires lowering prices to the point where total revenue decreases.
4. What does MR = $0 mean?
Total revenue is maximized at this point (often where MR = MC for profit maximization).
5. Why is MR important for businesses?
It helps determine optimal production levels and pricing strategies to maximize profits.
6. How does MR relate to Marginal Cost (MC)?
Profit is maximized where MR = MC. If MR > MC, producing more increases profit.
7. What units is MR measured in?
Dollars per unit ($/unit).
8. Does MR change with market structure?
Yes. In perfect competition, MR = Price. In monopolies, MR < Price due to price adjustments.
9. How do discounts affect MR?
Discounts often reduce MR because the additional revenue per unit decreases.
10. Can MR be constant?
Only in perfect competition (where price doesn’t change with quantity sold).
