Marginal revenue is the revenue a business receives from selling one more unit of a product. Because some production costs are fixed and some are variable, marginal revenue usually changes as a business sells more product. Determining marginal revenue helps a business set production levels to maximize revenue.
Calculating Marginal Revenue
Marginal revenue is equal to the change in revenue divided by the change in quantity. To determine change in revenue, subtract the new revenue amount from the old amount. To calculate change in quantity, subtract the new quantity of products sold by the previous quantity sold. For example, say that a business makes $100 in revenue from selling 50 products and $120 in revenue if it sells 52 products. The total change in revenue is $10 and the total change in quantity is 2. The marginal revenue for the product at this sales level is $10 divided by 2, or $5.
- Digital Vision./Photodisc/Getty Images