What is Marginal Revenue?

The additional revenue generated by selling an additional unit of output is known as Marginal Revenue. In simple terms, it is the change in Total Revenue from the sale of one more unit of a commodity. The formula for Marginal Revenue is,

MR_n = TR_n – TR_n-1

Where,

MR_n = Marginal Revenue of the n^th unit

TR_n = Total Revenue from n units

TR_n-1 = Total Revenue from n-1 units

n = Number of units sold

For example, if the total revenue generated from the sale of 100 tables is ₹20,000 and from the sale of 101 tables is ₹20,500; then the Marginal Revenue of the 101^st table will be,

MR_n = TR_n – TR_n-1

MR₁₀₁ = 20,500 – 20,000 = ₹500

One more way to calculate MR

As we already know, Marginal Revenue is the change in TR when one more unit of the output is sold. However, when the change in units of output sold is more than one, then the previous formula can be difficult to use. In those cases, MR can be determined by using the following formula:

For example, if the TR from the sale of 100 tables is ₹20,000 and 110 tables is ₹24,500; then the Marginal Revenue will be,

Slope of Total Revenue Curve is represented by Marginal Revenue. It is because 

TR is the summation of MR

Another way to calculate TR is by adding the Marginal Revenues of all the units sold. In simple terms, another formula for determining TR is,

TR_n = MR₁ + MR₂ + MR₃ + ……………….+MR_n

OR

TR = ∑MR

Illustration 1:

From the following table, determine TR, AR, and MR:

Solution: