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. Horizontal Merger

    A merger occurring between companies in the same industry. Horizontal ...
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
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 Deadweight Loss?

    Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources.
  6. Investing

    The Strong Dollar’s (Real) Toll On Tech Stocks

    A large portion of U.S. technology companies’ sales occur overseas, given the strong international business and consumer demand from many U.S. tech firms.
  7. Investing

    Apple or Google: Which is the Better Bet?

    Apple and Google have made many investors rich since the turn of the century. Which is more appealing going forward?
  8. Fundamental Analysis

    Invest in Cancer Research with These 3 Stocks

    These cancer research stocks offer both a high ceiling and the potential to save lives.
  9. Economics

    The Big Chill: What’s Wrong With The U.S. Consumer

    Based on the most recent April data, investors may, once again, be disappointed when the second-quarter gross domestic product (GDP) report comes in.
  10. Economics

    Explaining Tier 1 Capital

    Tier 1 capital refers to the core capital a bank must maintain in relation to its assets.

You May Also Like

Hot Definitions
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  4. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  5. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  6. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
Trading Center