Marginal revenue

Marginal revenue is the additional revenue generated by the sale of one extra unit.  The concept is frequently used to determine whether special pricing deals are worthwhile. For example, a business can sell 10 units for a total of $100, which is $10 each. A customer offers to buy 11 units if the total price is reduced to $108. This means that the marginal revenue associated with the extra unit sold is $8.

As sales increase, marginal revenue is likely to gradually decline. A business would continue to accept lower marginal revenue levels until the marginal revenue equals marginal cost.

Related Courses

Financial Analysis