How to Calculate Marginal Revenue
Marginal revenue equals the change in total revenue from selling one more unit: MR = ΔTR ÷ ΔQ. In perfect competition MR = price.
Formula
Steps
- 1Compute total revenue at each quantity. TR = price × quantity, using the price buyers pay at each output level.
- 2Take the change in total revenue. ΔTR between consecutive quantities.
- 3Divide by the change in quantity. MR = ΔTR ÷ ΔQ. For one-unit steps, MR is just the extra revenue from that unit.
Worked example
A monopolist can sell 4 units at $10 (TR = $40) or 5 units at $9 (TR = $45). MR of the 5th unit = 45 − 40 = $5 — less than the $9 price, because cutting price to sell the 5th unit sacrifices $1 on each of the first 4.
Frequently asked questions
Why is MR less than price for a monopolist?
To sell another unit, a single-price monopolist must lower the price on all units, so the extra revenue is the new sale minus the revenue lost on every previous unit.
When is marginal revenue negative?
When demand is inelastic: cutting price then lowers total revenue, so the extra unit's MR is negative. A monopolist never produces in this region.
What does the MR curve look like for linear demand?
It shares the demand curve's price-axis intercept but falls twice as steeply, hitting zero at the quantity where total revenue is maximized.
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