Marginal Revenue - MR

AAA

DEFINITION of 'Marginal Revenue - MR'

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.

INVESTOPEDIA EXPLAINS '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).

VIDEO

Loading the player...
RELATED TERMS
  1. Perfect Competition

    A market structure in which the following five criteria are met: ...
  2. Marginal Analysis

    An examination of the additional benefits of an activity compared ...
  3. Law Of Diminishing Marginal Utility

    A law of economics stating that as a person increases consumption ...
  4. Law of Diminishing Marginal Returns

    A law of economics stating that, as the number of new employees ...
  5. Monopoly

    A situation in which a single company or group owns all or nearly ...
  6. Marginal Rate of Technical Substitution

    The rate at which one factor has to be decreased in order to ...
RELATED FAQS
  1. How is marginal revenue related to the marginal cost of production?

    The marginal cost of production and marginal revenue are economic measures used to determine the amount of output and the ... Read Full Answer >>
  2. How is profit maximized in a monopolistic market?

    In a monopolistic market, there is only one firm that produces a product. There is absolute product differentiation because ... Read Full Answer >>
  3. What is the relationship between marginal revenue and total revenue?

    Total revenue is the amount of total sales of goods and services. It is calculated by multiplying the amount of goods and ... Read Full Answer >>
  4. What is the best way to calculate profitability for startups?

    For companies at every stage of development, accurately measuring profitability is crucial to the creation of effective business ... Read Full Answer >>
  5. How can you find the demand function from the utility function?

    A consumer's budget constraint is used alongside the utility function to derive the demand function. The utility function ... Read Full Answer >>
  6. How is a market failure prevented with regard to public goods?

    It was once commonly accepted that any public good constituted a market failure and provided necessary and sufficient conditions ... Read Full Answer >>
Related Articles
  1. Investing

    What's Marginal Revenue?

    In microeconomics, marginal revenue is the additional revenue generated by increasing sales revenue by one unit. Another way of saying this is that the marginal revenue is the revenue generated ...
  2. Fundamental Analysis

    How Influential Economists Changed Our History

    Find out how these five groundbreaking thinkers laid our financial foundations.
  3. Economics

    The History Of Economic Thought

    Economics is a vital part of every day life. Discover the major players who shaped its development.
  4. Economics

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
  5. Economics

    What is a Fiduciary?

    A fiduciary is a person who acts on behalf of another person (or people) to manage assets.
  6. Economics

    Understanding Subordinated Debt

    A loan or security that ranks below other loans or securities with regard to claims on assets or earnings.
  7. Economics

    How to Calculate Trailing 12 Months Income

    Trailing 12 months refers to the most recently completed one-year period of a company’s financial performance.
  8. Economics

    What is Unearned Revenue?

    Unearned revenue can be thought of as a "pre-payment" for goods or services which a person or company is expected to produce to the purchaser.
  9. Economics

    What is a Capital Lease?

    A lease considered to have the economic characteristics of asset ownership.
  10. Investing

    Why Cash Management Is Key To Business Success

    Businesses need to generate a healthy cash flow to survive, but not hold too much so that inventory suffers or investment opportunities are missed.

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center