Why marginal revenue matters
Marginal revenue tells you whether the next unit of output is worth producing. Pair it with marginal cost: a firm maximizes profit at the quantity where MR = MC. Above that point, each unit loses money; below it, you're leaving profit on the table.
- • MR > MC → expand output.
- • MR < MC → cut output.
- • MR = MC → profit-maximizing quantity.
Marginal revenue vs price
Under perfect competition (commodity markets, frictionless price-takers), MR equals the market price. Under any pricing power — brands, network effects, switching costs — MR is less than price because adding volume usually requires lowering the price for ALL units, not just the new one.
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Read the guideFAQ
How do I calculate marginal revenue?
MR = change in total revenue ÷ change in quantity. Use this calculator's two-point form: compare your starting (P₁, Q₁) to your post-change (P₂, Q₂).
Why is marginal revenue less than price?
Because lowering the price to sell one more unit usually means lowering the price across all units (not just the new one). The 'lost' revenue on inframarginal units offsets the new sale.
What's a negative marginal revenue?
It means a price cut hurt total revenue more than added volume helped. You're in the inelastic part of the demand curve — raise prices, don't cut.