AP MicroeconomicsMarket Structures
Marginal Revenue
Marginal revenue is the additional revenue a firm earns from selling one more unit of output.
For a perfectly competitive firm, marginal revenue equals the market price because the firm is a price taker. For a price maker such as a monopoly, marginal revenue lies below price and falls faster than demand, because cutting price to sell one more unit lowers revenue on all prior units. Every firm maximizes profit where marginal revenue equals marginal cost.
Formula / Example
MR = ΔTotal Revenue ÷ ΔQuantity. Perfect competition: MR = P. Monopoly: MR < P. Profit max: MR = MC.
Interactive graph
Monopoly →
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Study module
Perfect Competition →
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