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Marginal Revenue

Definition

Marginal revenue refers to the additional revenue generated from selling one more unit of a good or service. It is calculated by dividing the change in total revenue by the change in quantity sold.

Analogy

Imagine you have a lemonade stand, and you sell each cup for $1. If you sell 10 cups, your total revenue is $10. Now, if you sell one more cup for $1, your total revenue increases to $11. The marginal revenue for that extra cup is $1 because it's the additional amount earned from selling just one more unit.

Related terms

Total Revenue: Total revenue represents the overall income generated from selling a certain quantity of goods or services at a given price level. It is calculated by multiplying the price per unit by the quantity sold.

Average Revenue: Average revenue is obtained by dividing total revenue by the number of units sold. It gives an indication of how much each unit contributes on average to total sales.

Marginal Cost: Marginal cost refers to the additional cost incurred when producing one more unit of output. Comparing marginal cost with marginal revenue helps determine whether it's profitable to produce additional units or not.