Marginal Revenue Calculator

Calculate additional revenue from selling one more unit of product.

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What is Marginal Revenue?

Marginal revenue (MR) is the additional revenue generated from selling one more unit of a product or service.

Marginal revenue is the extra money a company makes by selling one more unit. It’s calculated by dividing the change in total revenue by the change in quantity sold.

It’s crucial for businesses as it helps determine production levels, pricing, and profit maximization. It also indicates market power and competition levels.

In perfect competition, marginal revenue equals the product’s price. In less competitive markets, it usually decreases as more units are sold, often due to price reductions to increase sales.

Marginal Revenue Formula

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Change in Revenue} &= \mathrm{\Delta R}\newline\text{Change in Quantity} &= \mathrm{\Delta Q}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Marginal Revenue} = \mathrm{MR} \newline = \frac{\mathrm{\Delta R}}{\mathrm{\Delta Q}}\end{gather*}

Marginal Revenue Calculation Examples

Example 1

A software company introduces a new feature in their product. They observe that by selling 5 additional licenses, their revenue increases by $500.

Let's calculate the marginal revenue:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Change in Revenue}\space(\mathrm{\Delta R}) &= \mathrm{{\$}500}\newline\text{Change in Quantity}\space(\mathrm{\Delta Q}) &= 5\end{aligned}\newline\bold{Calculate{:}}\newline\text{Marginal Revenue}\space(\mathrm{MR})\newline\begin{aligned}&= \frac{\mathrm{\Delta R}}{\mathrm{\Delta Q}}\newline&= \frac{\mathrm{{\$}500}}{5}\newline&= \mathrm{{\$}100}\end{aligned}\end{gather*}

This indicates that each additional license sold contributes $100 to the company's revenue.

This information can help the company decide on pricing strategies and whether to invest in marketing to promote this new feature.

Example 2

A farmer decides to expand their organic vegetable production. They find that by increasing their harvest by 100 bushels, they can increase their revenue by $2,000.

Let's calculate the marginal revenue for this expansion:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Change in Revenue}\space(\mathrm{\Delta R}) &= \mathrm{{\$}2{,}000}\newline\text{Change in Quantity}\space(\mathrm{\Delta Q}) &= 100\end{aligned}\newline\bold{Calculate{:}}\newline\text{Marginal Revenue}\space(\mathrm{MR})\newline\begin{aligned}&= \frac{\mathrm{\Delta R}}{\mathrm{\Delta Q}}\newline&= \frac{\mathrm{{\$}2{,}000}}{100}\newline&= \mathrm{{\$}20}\end{aligned}\end{gather*}

This result shows each additional bushel of organic vegetables adds $20 to the farmer's revenue.

The farmer can use this to assess if expanding production costs are justified by the marginal revenue.

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