Marginal revenue (MR) is the extra income a business earns by selling one additional unit of a product. It measures how total revenue changes when production increases by one unit.

The Calculation:

MR = ΔTR / ΔQ (Change in Total Revenue divided by Change in Quantity)

Important relationships:

• In perfect competition, MR is equal to the market price.
• In imperfect competition, MR decreases as more units are sold because the price must drop to attract more customers.
• A company reaches maximum profit when MR equals Marginal Cost (MC).
• If MR is higher than MC, producing more units increases profit.
• If MR is lower than MC, producing fewer units increases profit.