Marginal Revenue Calculator
Calculate marginal revenue to determine optimal pricing and production levels for profit maximization. This calculator helps analyze revenue changes and pricing strategy.
Revenue Data
Cost Data (Optional for Profit Analysis)
Revenue Analysis
Marginal Revenue:
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Average Revenue:
$0.00
Revenue Elasticity:
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Profit Optimization
MC = MR Analysis:
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Optimal Output:
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Profit Strategy:
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Business Insights
Demand Elasticity:
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Pricing Power:
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Market Strategy:
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Understanding Marginal Revenue
Marginal revenue is the additional revenue generated from selling one more unit of a good or service. It plays a crucial role in determining optimal production levels and pricing strategies for profit maximization.
What is Marginal Revenue?
Definition
- Additional revenue from one more unit
- Change in total revenue ÷ change in quantity
- Key to profit maximization
- Depends on market structure
Formula
- Marginal Revenue = ?Total Revenue ÷ ?Quantity
- MR = (TR2 - TR1) ÷ (Q2 - Q1)
- Can be positive or negative
- Declines with quantity in most markets
Marginal Revenue by Market Structure
MR in Different Markets
How market power affects marginal revenue
Perfect Competition:
- MR = Price (constant)
- Horizontal demand curve
- Price taker
- No market power
Monopoly:
- MR < Price
- Downward sloping demand
- Price maker
- Significant market power
Oligopoly:
- MR depends on competition
- Kinked demand curve possible
- Some market power
- Strategic interactions
Monopolistic Competition:
- MR < Price
- Differentiated products
- Limited market power
- Some pricing flexibility
Profit Maximization Rule
The Golden Rule:
- Produce where MR = MC
- Marginal revenue equals marginal cost
- Profit is maximized
- Fundamental principle
Economic Logic:
- Each unit adds revenue and cost
- Continue while MR > MC
- Stop when MR < MC
- Optimal at MR = MC
Marginal Revenue and Price
| Market Type | MR Relationship to Price | MR Curve | Profit Maximization |
|---|---|---|---|
| Perfect Competition | MR = P | Horizontal line | P = MC |
| Monopoly | MR < P | Downward sloping | MR = MC |
| Monopolistic Competition | MR < P | Downward sloping | MR = MC |
Calculating Marginal Revenue
From Total Revenue:
- MR = ?TR / ?Q
- Use discrete changes
- Simple calculation
- Approximate for small changes
From Demand Function:
- MR = d(TR)/dQ
- Use calculus for continuous
- Precise for any quantity
- Requires demand equation
Business Applications
Pricing Decisions:
- Optimal price setting
- Price discrimination
- Promotional pricing
- Dynamic pricing
Production Planning:
- Output optimization
- Capacity planning
- Resource allocation
- Make-or-buy decisions
Revenue Elasticity
Price Elasticity of Demand:
- %?Q / %?P
- Measures price sensitivity
- Affects MR behavior
- Pricing strategy guide
MR and Elasticity:
- Elastic demand: MR > 0
- Inelastic demand: MR < 0
- Unit elastic: MR = 0
- Revenue maximization
Strategic Implications
Market Power:
- MR indicates pricing flexibility
- Competition affects MR
- Brand strength matters
- Market share considerations
Profit Optimization:
- MR = MC for maximum profit
- Short-term vs long-term
- Capacity constraints
- Strategic trade-offs
Limitations of Marginal Revenue
Practical Issues:
- Assumes smooth demand curves
- Discrete quantity changes
- Measurement difficulties
- External factor changes
Context Matters:
- Market structure assumptions
- Time horizon considerations
- Competitive responses
- Strategic objectives
Key Takeaways for Marginal Revenue
- Marginal revenue is the additional revenue from selling one more unit
- In perfect competition, MR equals price; in monopoly, MR is less than price
- The profit maximization rule is to produce where MR = MC
- Marginal revenue declines as quantity increases in most market structures
- Marginal revenue analysis is crucial for optimal pricing and production decisions
- MR curves are downward sloping in imperfect markets due to the law of demand
- Understanding MR helps businesses make informed pricing and output decisions
- MR analysis is fundamental to microeconomic theory and business strategy