Marginal Revenue - MR

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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.

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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 used in business planning?

    A company should always be trying to maximize its marginal revenue. When a business is in its planning stage, it will look ... Read Full Answer >>
  2. Why do companies stop trying to increase marginal revenue?

    A company stops trying to increase marginal revenue when the marginal revenue for producing one additional unit of a good ... Read Full Answer >>
  3. What is the difference between marginal benefit and marginal revenue?

    Marginal benefit measures the consumer's benefit of consuming an additional unit of a good or service, while marginal revenue ... Read Full Answer >>
  4. How can marginal revenue increase?

    Marginal revenue increases whenever the revenue received from producing one additional unit of a good grows faster (or shrinks ... Read Full Answer >>
  5. 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 >>
  6. 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 >>
  7. 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 >>
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    For companies at every stage of development, accurately measuring profitability is crucial to the creation of effective business ... Read Full Answer >>

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