Marginal Revenue

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In microeconomics, marginal revenue is the additional revenue that will be generated by increasing product sales by 1 unit. It can also be described as the unit revenue the last item sold has generated for the firm. In a perfectly competitive market, the additional revenue generated by selling an additional unit of a good is equal to the price the firm is able to charge the buyer of the good. This is because a firm in a competitive market will always get the same price for every unit it sells regardless of the number of units the firm sells since the firm's sales can never impact the industry's price. However, a monopoly determines the entire industry's sales. As a result, it will have to lower the price of all units sold to increase sales by 1 unit. Therefore the Marginal Revenue generated is always less (lower) than the price the firm is able to charge for the unit sold since each reduction in price causes unit revenue to decline on every good the firm sells. The marginal revenue (the increase in total revenue) is the price the firm gets on the additional unit sold, less the revenue lost by reducing the price on all other units that were sold prior to the decrease in price. [Source: Wikipedia]


Sayed Farrukh Ahmed
Assistant Professor
Faculty of Business & Economics
Daffodil International University

[sajib]

    
Definition of 'Marginal Revenue - MR'

The increase in revenue that results from the sale of one additional unit of output. Marginal revenue is calculated by dividing the change in total revenue by the change in output quantity. While marginal revenue can remain constant over a certain level of output, it follows the law of diminishing returns and will eventually slow down, as the output level increases.

Perfectly competitive firms continue producing output until marginal revenue equals marginal cost.[    
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