Marginal Revenue - MR

Marginal Revenue - MR

The increase in revenue that results from the sale of one additional unit of output. Marginal revenue is calculated by dividing the change in total revenue by the change in output quantity. While marginal revenue can remain constant over a certain level of output, it follows the law of diminishing returns and will eventually slow down, as the output level increases.

Perfectly competitive firms continue producing output until marginal revenue equals marginal cost.

For example, a company producing brooms has a total revenue of $0, when it doesn't produce any output. The revenue it sees from producing its first broom is $15, bringing marginal revenue to $15 ($15 in total revenue/1 unit of product). If the revenue from the second broom is $10, the marginal revenue gained by producing the second broom is $10 (change in total revenue: $25-$15/1 additional unit).

Investment dictionary. . 2012.

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