how to calculate marginal revenue
How to calculate marginal revenue
Answer:
Calculating marginal revenue is an important concept in economics to determine the change in total revenue that results from the sale of one additional unit of a good or service. Marginal revenue can be calculated using the following formula:
Marginal Revenue (MR) = Change in Total Revenue / Change in Quantity
To provide a step-by-step explanation of calculating marginal revenue:
- Determine the total revenue earned from selling a certain quantity of goods or services.
- Increase the quantity by one unit and calculate the new total revenue.
- Subtract the initial total revenue from the new total revenue to find the change in total revenue.
- Marginal Revenue is then obtained by dividing the change in total revenue by the change in quantity.
- The resulting value is the marginal revenue for that particular level of quantity sold.
Understanding and calculating marginal revenue is crucial for businesses to make informed decisions about pricing strategies, production levels, and revenue optimization.