Marginal Revenue - MR

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What is 'Marginal Revenue - MR'

Marginal revenue (MR) is the increase in revenue that results from the sale of one additional unit of output. Marginal revenue is calculated by dividing the change in total revenue by the change in output quantity. While marginal revenue can remain constant over a certain level of output, it follows the law of diminishing returns and will eventually slow down, as the output level increases.

Perfectly competitive firms continue producing output until marginal revenue equals marginal cost.

BREAKING DOWN 'Marginal Revenue - MR'

For example, a company producing brooms has a total revenue of $0, when it doesn't produce any output. The revenue it sees from producing its first broom is $15, bringing marginal revenue to $15 ($15 in total revenue/1 unit of product). If the revenue from the second broom is $10, the marginal revenue gained by producing the second broom is $10 (change in total revenue: $25-$15/1 additional unit).

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RELATED FAQS
  1. How is marginal revenue related to the marginal cost of production?

    Learn about the marginal cost of production and marginal revenue and how the two measures are related when determining the ... Read Answer >>
  2. What is the relationship between marginal revenue and total revenue?

    Learn what total and marginal revenue are, how to calculate marginal revenue given total revenue, and how marginal and total ... Read Answer >>
  3. How can marginal revenue increase?

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  4. How do companies calculate revenue?

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  5. How do fixed and variable costs each affect the marginal cost of production?

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