Definition – What is Marginal Revenue?
Marginal revenue, or MR, is the incremental revenue from selling an additional unit.
MR changes depending on how many units sell. For example, the first 10 units could sell for $100. To sell the next 10 units (#11 – 20) they would have to sell for $90. The next 10 units (#21 – 30) would only sell for $80. In this case, the marginal revenue of selling unit #22 would be $80. The marginal revenue of selling unit #9 would be $100.
Formula – How to Calculate Marginal Revenue
Marginal Revenue = Change in Total Revenue ÷ Change in Quantity
Change in total revenue is $200 and change in quantity is 1,000 units.
Marginal Revenue = $200 ÷ 1,000 = 0.20
Marginal revenue is 0.20.
Sources and more resources
- Wikipedia – Marginal Revenue – An explanation of marginal revenue including formulas.
- Investopedia – Marginal Revenue – MR – An introduction to the concept of marginal revenue.
- Khan Academy – Marginal Revenue and Marginal Cost – part of a larger course on microeconomics, this video explains the concepts of MR and MC.
- Houston Chronicle Small Business – How to calculate marginal revenue – A short explanation on how marginal revenue is calculated.