![]() Marginal revenue directly relates to total revenue because it measures the total revenue increase from selling an additional product unit. To calculate total revenue, multiply the number of goods or amount of services sold by their prices. ![]() In contrast, total revenue refers to the full amount of total product sales regardless of revenue source: sales, investments, marketing, and customer success. However, marginal revenue diminishes with each additional unit sold for a monopoly, and it's always equal to or less than its average revenue-the reason being that price changes with the change in quantity sold.Īs stated above, marginal revenue is the revenue increment from selling an additional unit of a product. To obtain average revenue, divide the total revenue earned from the number of units sold.Ī competitive firm's price equals its marginal revenue and average revenue because it remains constant over other varying output levels. On the other hand, average revenue refers to revenue earned per output unit. It is the additional revenue from selling one more unit. Marginal revenue is the net revenue a business earns by selling an additional unit of its product. ![]() Below is the relationship between marginal revenue and other economic metrics: ![]() Marginal revenue and other economic metricsĮconomic theory assumes that perfectly competitive firms will continue producing output to increase profits until marginal revenue equals marginal cost. ![]()
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