Marginal Revenue

What is this formula?

Marginal Revenue measures the additional revenue generated by selling one more unit of output.

It is a fundamental concept in microeconomics and plays a central role in profit-maximization decisions.

When to use it

Use this formula when analyzing pricing strategies, production decisions, market structure, and firm profitability.

Example

Initial sales quantity:

Q1 = 100 units

Final sales quantity:

Q2 = 120 units

Initial total revenue:

TR1 = 4,000 USD

Final total revenue:

TR2 = 4,700 USD

Formula:

MR = (TR2−TR1)/(Q2−Q1)

Substitution:

MR = (4700−4000)/(120−100)

MR = 700/20

MR = 35 USD/unit

Result:

Each additional unit sold generates approximately 35 USD of additional revenue.

Applications

- Profit maximization

- Pricing strategy

- Market analysis

- Revenue forecasting

- Business decision-making

Note

This formula calculates marginal revenue over a finite interval and therefore represents an average marginal revenue between two production levels. In economic theory, marginal revenue is often defined as the derivative of total revenue with respect to quantity, but this discrete form is more suitable for practical calculations.