How to Use Marginal Revenue Calculator
Enter the change in total revenue.
Enter the change of quantity sold
Marginal Revenue Calculator
Formula:Marginal Revenue = (total revenue)/(quantity)
Marginal revenue is the measurement of difference in revenue when additional units of a product are sold. It can be determined by finding the derivative of the total revenue divided by the change in quantity.
Example Using the above formula
- Say a company sells 10 units for $9 each.
- She total revenue for their sale would be $90.
- Now say the same company sells their 11th unit for $11.
- This makes the total revenue from selling 11 units $101.
- The marginal revenue is calculated as $11, or ($101-$90)÷(11-10).
A company’s goal would be to determine the level of production and price where the marginal revenue (MR) and their marginal cost (MC) are equal and profit are maximized. If a company’s MR is below their MC, they are producing above demand and should scale back on its production. Vice versa, should the MR be above the MC, the company has not yet reached its maximum output in production to maximize profit.
A revenue schedule (below) enables us to see the projected quantities demanded in increasing order against their corresponding price in order to find the projected total revenue for each column. The difference between the projected revenue and the total revenue is where we determine the marginal revenue, as well as the maximum profit opportunity for the company.
|Number of Units Sold
||Price or Average Revenue (AR
||Total Revenue(AR x Quantity sold)
||Marginal Revenue(addition to total revenue)
Following the law of diminishing return, overtime, marginal revenue tends to decrease as production increases. Per the above table, a company will expand so long as the sale of an additional unit is more than the cost of producing the extra unit. The addition to the total revenue and the cost of production of the extra unit is referenced as our marginal revenue and marginal cost. Thus this can be said a company will continue to expand production until the cost of marginal revenue is lesser than the marginal cost.
To reach equilibrium, where the MR and the MC are equal are unrealistic in the real life and also have no economic profit; changing demand and price elasticity from consumers enable companies to shift and either lower or bid up the price of their services or goods. Marginal revenue may also increase in cases were the marginal cost of production lowers. This occurs in instances where workers become more skilled or the addition of technology that helps with overall capital goods produced.
Competitive firms differ from monopolies in their relationship with marginal revenue. The former is able to sell as many units as they would like at market price, dictated by the market and a constant, whereas the monopolist can only do so by cutting its prices for its current and subsequent units. A competitive firm maximizes their profit when their marginal cost equals the market price. The monopolists reach their maximum profit when their marginal cost equal marginal revenue which is lower than market prices usually.