Return On Assets Calculator Marginal revenue calculator helps you determine how much additional revenue a company earns by selling one more unit of a product or service. It’s useful for businesses to understand how changes in sales volume affect their total revenue, and optimize their pricing and sales strategies to maximize profits.
What is Marginal Revenue?
“Marginal revenue is the additional revenue generated by selling one more unit of a product or service”
It is a key concept in economics that helps businesses determine the optimal price and quantity to sell their products or services to maximize profits.
Example:
If you sell 10 lemonades for $10 each and then sell an eleventh lemonade for $10. The marginal revenue for the eleventh lemonade would be $10.
Marginal Revenue Formula:
Here is the basic formula that helps you to calculate the marginal revenue:
$$ \text{Marginal Revenue (MR)} = \frac{\text{Change in Total Revenue}\;(\Delta TR)}{\text{Change in Quantity Sold}\;(\Delta Q)} $$
How to Calculate Marginal Revenue?
The easiest way to calculate the marginal revenue is by using the marginal revenue calculator. But if you want to calculate it manually, then follow the example.
Example:
A bakery sells cupcakes at $2.50 each. On Monday, they sell 100 cupcakes generating a total revenue of $250. On Tuesday, they sold 110 cupcakes generating a total revenue of $275.
To calculate the marginal revenue for the 110th cupcake, we'll use the formula:
Marginal Revenue (MR) = Change in Total Revenue (ΔTR) / Change in Quantity Sold (ΔQ)
Change in Total Revenue = $275 - $250 = $25
Change in Quantity Sold = 110 cupcakes - 100 cupcakes = 10 cupcakes
Now, put the values into the formula:
Marginal Revenue (MR) = $25 / 10 cupcakes = $2.50 per cupcake
Therefore, the marginal revenue for the 110th cupcake is $2.50. This means that the bakery earned an additional $2.50 by selling one more cupcake on Tuesday compared to Monday.
Marginal Revenue Chart:
Let’s have a look at this chart to make your concepts clear!
| Quantity Sold (Q) | Total Revenue (TR) | Change in TR (ΔTR) | Marginal Revenue (MR) |
|---|---|---|---|
| 10 | $100 | - | - |
| 15 | $150 | $50 | $10 |
| 20 | $190 | $40 | $8 |
| 25 | $225 | $35 | $7 |
| 30 | $255 | $30 | $6 |
FAQs:
What Affects the Marginal Revenue?
Here are some important factors that affect the marginal revenue directly, such as:
- Demand: The more people want a product, the higher its marginal revenue.
- Price: Raising the price can boost marginal revenue initially. But if the price is too high, demand may drop, reducing marginal revenue.
- Production Costs: As production costs increase, marginal revenue may decrease.
- This makes it less profitable to produce more items.
- Competition: Intense competition can drive down prices and reduce marginal revenue.
- Marketing: Effective marketing can increase demand and boost marginal revenue.
Is Marginal Revenue the Same As Profit?
No, marginal revenue and profit are not the same. Marginal revenue is the additional revenue earned from selling one more unit of a product or service, while profit is the total revenue minus the total cost of producing and selling all units of the product or service.
References:
Investopedia.com: What Is Marginal Revenue? Understanding Marginal Revenue, How to Calculate Marginal Revenue