How do you calculate marginal revenue
Marginal revenue is the additional revenue earned from selling one additional unit of a product. It is calculated by taking the change in total revenue and dividing it by the change in quantity sold.
The formula for calculating marginal revenue is:
Marginal Revenue = (Change in Total Revenue) / (Change in Quantity Sold)
To calculate the change in total revenue, subtract the total revenue before selling the additional unit from the total revenue after selling the additional unit. To calculate the change in quantity sold, subtract the quantity sold before selling the additional unit from the quantity sold after selling the additional unit.
For example, let's say a company sells 100 units of a product at a price of $10, resulting in a total revenue of $1,000. If the company sells 101 units at a price of $9, the total revenue increases to $909.
Change in Total Revenue = $909 - $1,000 = -$91
Change in Quantity Sold = 101 - 100 = 1
Marginal Revenue = (-$91) / (1) = -$91
In this example, the marginal revenue for selling the additional unit is -$91, indicating that the company is experiencing a decrease in total revenue by selling one more unit at a lower price.