Marginal Revenue Example: A Hands-on Approach
Here to Clear Things Up
Hey readers, thanks for taking the time to read our article on marginal revenue example. We know this topic can be a bit tricky, so we’ve put together this guide to help make it as easy as possible to understand.
In this article, we’ll cover the basics of marginal revenue, including what it is, how it’s calculated, and how it can be used to make better business decisions. We’ll also provide a few real-world examples of how marginal revenue is used in practice.
Understanding Marginal Revenue
What is Marginal Revenue?
Marginal revenue is the additional revenue generated by selling one additional unit of a product or service. It’s calculated by subtracting the total revenue from the total cost of producing and selling that additional unit.
Why is Marginal Revenue Important?
Marginal revenue is important because it can help businesses make better pricing decisions. By understanding how marginal revenue changes as the price of a product or service changes, businesses can set prices that will maximize their profits.
Calculating Marginal Revenue
Formula for Marginal Revenue
The formula for marginal revenue is:
Marginal Revenue = Total Revenue - Total Cost
Example of Marginal Revenue Calculation
Let’s say that a company produces and sells 100 units of a product for a total revenue of $1,000. The total cost of producing and selling those 100 units is $500. The marginal revenue from selling the 101st unit would be $10, which is calculated as follows:
Marginal Revenue = $1,000 - $500 = $10
Using Marginal Revenue in Practice
Pricing Decisions
As we mentioned before, marginal revenue can be used to make better pricing decisions. By understanding how marginal revenue changes as the price of a product or service changes, businesses can set prices that will maximize their profits.
Production Decisions
Marginal revenue can also be used to make production decisions. By understanding how marginal revenue changes as the quantity of a product or service produced changes, businesses can make decisions about how much to produce to maximize their profits.
Marginal Revenue Table
| Quantity | Total Revenue | Total Cost | Marginal Revenue |
|---|---|---|---|
| 100 | $1,000 | $500 | $10 |
| 101 | $1,010 | $505 | $5 |
| 102 | $1,020 | $510 | $10 |
Conclusion
Thanks for reading our article on marginal revenue example. We hope this article has helped you gain a better understanding of this important concept. For more information on marginal revenue and other economic topics, be sure to check out our other articles.
FAQ about Marginal Revenue Example
What is marginal revenue?
Marginal revenue is the additional revenue earned from selling one more unit of a product or service.
How do you calculate marginal revenue?
Marginal revenue is calculated by dividing the change in total revenue by the change in quantity sold.
What is an example of marginal revenue?
If a company sells 10 units of a product for a total revenue of $100, and then sells 11 units for a total revenue of $110, the marginal revenue from selling the 11th unit is $10.
What is the difference between marginal revenue and average revenue?
Average revenue is the total revenue divided by the number of units sold. Marginal revenue is the revenue from selling one more unit.
Why is marginal revenue important?
Marginal revenue is important because it helps businesses decide how many units of a product to produce. Businesses want to produce the quantity where marginal revenue equals marginal cost.
What happens when marginal revenue is negative?
When marginal revenue is negative, it means that the business is losing money by selling more units. Businesses should stop producing when marginal revenue is negative.
What factors affect marginal revenue?
Factors that affect marginal revenue include the price of the product, the price of competing products, and the cost of production.
How can I use marginal revenue to make a profit?
Businesses can use marginal revenue to make a profit by selling the quantity of products where marginal revenue equals marginal cost.
What are some examples of using marginal revenue in practice?
Businesses use marginal revenue to make decisions about pricing, production, and marketing. For example, a business might use marginal revenue to decide whether to lower the price of a product to increase sales, or to increase production to meet increased demand.
What are the limitations of using marginal revenue?
Marginal revenue is only an estimate of the additional revenue from selling one more unit. It does not take into account factors such as the cost of production, the price of competing products, or the quality of the product.
