Marginal Revenue (MR)

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Definition of 'Marginal Revenue (MR)'

Marginal revenue (MR) is the additional revenue that a company earns from selling one more unit of a good or service. It is calculated by taking the change in total revenue (TR) divided by the change in quantity (Q).

MR can be used to determine the optimal price for a product. If the MR is greater than the marginal cost (MC), then the company should increase production and lower the price. If the MR is less than the MC, then the company should decrease production and raise the price.

MR is also used to calculate the profit-maximizing level of output. The profit-maximizing level of output is the level of output at which MR = MC.

In the short run, a company's MR curve is downward-sloping. This is because as the company sells more units of a product, the price it can charge for each unit decreases. In the long run, a company's MR curve is horizontal. This is because the company can sell as many units of a product as it wants at the same price.

Marginal revenue is an important concept in economics and business. It can be used to make decisions about pricing, production, and profit maximization.

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