Editing Marginal revenue (section)

{{Short description|Additional total revenue generated by increasing product sales by 1 unit}}
[[File:Average and marginal revenue.svg|thumb|right|Linear marginal revenue (MR) and average revenue (AR) curves for a firm that is not in [[perfect competition]]]]

'''Marginal revenue''' (or marginal benefit) is a central concept in [[microeconomics]] that describes the additional total [[revenue]] generated by increasing product sales by 1 unit.<ref name="Essentials">Bradley R. chiller, "Essentials of Economics", New York: McGraw-Hill, Inc., 1991.</ref><ref name="MicroTheory">Edwin Mansfield, "Micro-Economics Theory and Applications, 3rd Edition", New York and London:W.W. Norton and Company, 1979.</ref><ref name="IntermediateMicro">Roger LeRoy Miller, "Intermediate Microeconomics  Theory Issues Applications, Third Edition", New York: McGraw-Hill, Inc, 1982.</ref><ref name="IndustrialOrg">Tirole, Jean,  "The Theory of Industrial Organization", Cambridge, Massachusetts: The MIT Press, 1988.</ref><ref name="EconDictionary">John Black, "Oxford Dictionary of Economics", New York: Oxford University Press, 2003.</ref> Marginal revenue is the increase in revenue from the sale of one additional unit of product, i.e., the revenue from the sale of the last unit of product. It can be positive or negative. Marginal revenue is an important concept in vendor analysis.<ref name="positive">Primont, D. F., & Primont, D. (1995). Further Evidence of Positively Sloping Marginal Revenue. Southern Economic Journal, 62(2), 481–485. https://doi.org/10.2307/1060699</ref><ref name="Negativity">Wilson, T. (1979). The Price of Oil: A Case of Negative Marginal Revenue. The Journal of Industrial Economics, 27(4), 301–315. https://doi.org/10.2307/2097955</ref> To derive the value of marginal revenue, it is required to examine the difference between the aggregate benefits a firm received from the quantity of a good and service produced last period and the current period with one extra unit increase in the rate of production.<ref name=":0">{{Cite book |last=Schiller, Bradley R. |title=Essentials of economics |date=2017 |publisher=McGraw-Hill/Irwin |author2=Gebhardt, Karen |isbn=978-1-259-23570-2 |edition=10th |location=New York |oclc=955345952}}</ref> Marginal revenue is a fundamental tool for economic decision making within a firm's setting, together with [[marginal cost]] to be considered.<ref>{{Cite book |last=Mankiw, N. Gregory |title=Principles of microeconomics |date=2009 |publisher=South-Western Cengage Learning |isbn=978-0-324-58998-6 |edition=5th |location=Mason, OH |oclc=226358094}}</ref>

In a [[perfect competition|perfectly competitive]] market, the incremental revenue generated by selling an additional unit of a good is equal to the price the firm is able to charge the buyer of the good.<ref name="IntermediateMicro" /><ref>O'Sullivan & Sheffrin (2003), p. 112.</ref>  This is because a firm in a [[perfect competition|competitive market]] will always get the same price for every unit it sells regardless of the number of units the firm sells since the firm's sales can never impact the industry's price.<ref name="Essentials" /><ref name="IntermediateMicro" /> Therefore, in a perfectly competitive market, firms set the price level equal to their marginal revenue <math>(MR = P)</math>.<ref name=":0" />

In [[imperfect competition]], a [[monopoly]] firm is a large producer in the market and changes in its output levels impact market prices, determining the whole industry's sales. Therefore, a monopoly firm lowers its price on all units sold in order to increase output (quantity) by 1 unit.<ref name="Essentials" /><ref name="IntermediateMicro" /><ref name=":0" /> Since a reduction in price leads to a decline in revenue on each good sold by the firm, the marginal revenue generated is always lower than the price level charged <math>(MR < P) </math>.<ref name="Essentials" /><ref name="IntermediateMicro" /><ref name=":0" /> The marginal revenue (the increase in total revenue) is the price the firm gets on the additional unit sold, less the revenue lost by reducing the price on all other units that were sold prior to the decrease in price. Marginal revenue is the concept of a firm sacrificing the opportunity to sell the current output at a certain price, in order to sell a higher quantity at a reduced price.<ref name=":0" />

[[Profit maximization]] occurs at the point where marginal revenue (MR) equals [[marginal cost]] (MC). If <math>MR > MC</math> then a profit-maximizing firm will increase output to generate more profit, while if <math>MR < MC</math> then the firm will decrease output to gain additional profit. Thus the firm will choose the profit-maximizing level of output for which <math>MR = MC</math>.<ref>{{Cite book|last=Fisher|first=Timothy C. G.|title=Managerial economics : a strategic approach|last2=Prentice|first2=David|last3=Waschik|first3=Robert G.|date=2010|publisher=Routledge|isbn=9780415495172|page=33|oclc=432989728}}</ref>