Marginal revenue definition
/What is Marginal Revenue?
Marginal revenue is the additional revenue generated by the sale of one extra unit. The concept is frequently used to determine whether special pricing deals are worthwhile. As sales increase, marginal revenue is likely to gradually decline. A business would continue to accept lower marginal revenue levels until the marginal revenue from one additional sale equals marginal cost.
How to Calculate Marginal Revenue
To calculate marginal revenue, divide the change in revenue by the change in quantity. The formula is as follows:
Change in revenue ÷ Change in quantity = Marginal revenue
Example of Marginal Revenue
As an example of marginal revenue, a business can sell 10 units for a total of $100, which is $10 each. A customer offers to buy 11 units if the total price is reduced to $108. This means that the marginal revenue associated with the extra unit sold is $8.