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Marginal Revenue Formula:
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Marginal Revenue (MR) is the additional revenue generated from selling one more unit of a good or service. It's a fundamental concept in microeconomics that helps businesses determine optimal production levels and pricing strategies.
The calculator uses the Marginal Revenue formula:
Where:
Explanation: The formula accounts for both the price received for the additional unit and the effect of selling more units on the price of all units sold.
Details: Marginal Revenue is crucial for profit maximization. Businesses typically produce up to the point where Marginal Revenue equals Marginal Cost (MR = MC). Understanding MR helps in pricing decisions and production planning.
Tips: Enter the current price in dollars, current quantity in units, and the derivative of price with respect to quantity (dP/dQ). The derivative represents how much the price changes when quantity changes by one unit.
Q1: What does a negative Marginal Revenue mean?
A: Negative MR indicates that selling an additional unit would decrease total revenue, typically occurring when price decreases significantly with increased quantity.
Q2: How is MR different for perfect competition vs monopoly?
A: In perfect competition, MR equals price (dP/dQ = 0). In monopoly, MR is less than price due to downward-sloping demand curve.
Q3: What's the relationship between MR and elasticity?
A: MR is positive when demand is elastic (|E| > 1), zero when unit elastic (|E| = 1), and negative when inelastic (|E| < 1).
Q4: How do you find dP/dQ in practice?
A: dP/dQ can be derived from the demand function. If you have price as a function of quantity (P(Q)), take its derivative with respect to Q.
Q5: Why does MR matter for businesses?
A: Comparing MR to MC helps determine optimal production levels. Producing where MR > MC increases profit, while MR < MC indicates overproduction.