Educational only. Concepts follow standard microeconomic theory (Varian, Mankiw). Real pricing decisions involve multi-period dynamics, competitor response, and brand effects beyond a static MR=MC model.
Marginal revenue (MR) is the change in total revenue from selling one more unit. The rule every business has to live by: profit is maximized where MR = MC (marginal cost). Test it on your own numbers with the Marginal Revenue Calculator.
Why MR is almost never equal to price
Outside perfect competition (and almost no business operates there), selling the next unit forces a price cut on every prior unit too. MR captures both effects: the new unit's price minus the lost margin on the rest of inventory at the new lower price. That's why MR is always ≤ price for any downward-sloping demand curve, and equal only when the curve is perfectly flat.
The linear demand shortcut
For a linear demand curve P = a − bQ, marginal revenue is MR = a − 2bQ. MR slopes down twice as fast as the demand curve. A useful consequence: MR hits zero at exactly half the quantity where price hits zero. Beyond that, raising quantity destroys revenue (you're on the inelastic side of the demand curve).
Elasticity, the operator's tool
The elegant form: MR = P × (1 + 1/ε), where ε is price elasticity (negative for downward demand).
- Elastic (|ε| > 1): MR positive — raising quantity lifts revenue.
- Unit-elastic (|ε| = 1): MR = 0 — revenue is at its peak.
- Inelastic (|ε| < 1): MR negative — raising quantity destroys revenue.
If you know your category elasticity is roughly 1.4, then MR ≈ P × (1 − 0.71) = 0.29 × P. Telling.
SaaS pricing, restated as MR=MC
Replace "units" with "plans sold" and "TR" with MRR × 12. The next plan you sell costs you something (infra, support headcount, churn risk). Until MR from that plan = MC of supporting it, keep selling. When MR drops below MC — because each new customer is more price-sensitive than the last, or because support cost rises — you've found the right price.