Marginal Revenue Formula | Seller’s Revenue

In this article we will discuss about the formula and equation for calculating the marginal revenue that the seller acquires by selling the good.

Marginal Revenue (MR) of the firm at any quantity of output sold is the increment in its total revenue (TR) that is obtained when the firm sells the marginal (or the additional) unit of that quantity. In other words, marginal revenue at any output (q) is the (extra) revenue that the firm obtains from selling the marginal (or the additional) unit of that output.

For example, suppose, when the quantities sold (q) are 9, 10 and 11 units, the firm’s TRs are, 50, 55 and 58 (Rs) respectively. Here, at q = 10, the firm’s MR obtained from selling the marginal unit or the 10th unit = 55 – 50 = 5 (Rs). Similarly, at q = 11, MR = 58 — 55 = 3 (Rs).

On the basis of this definition of MR, can be written as:

(MR)_{q = n units} =(TR)_{q = n} – (TR)_{q =n-1}  ……(3.5)

Again, if the increase in the firm’s quantity of output sold (q) is more than one unit, then by definition:

MR = ∆TR/∆q  …..(3.6)

Here ∆q is the increase in q and ATR is the resulting increase in TR. For example, let us suppose, when the firm’s q increases from 10 units to 15 units, its TR increases from Rs 100 to Rs 130.

In this case,

MR = ∆TR/∆q = 30/6 = 6 (Rs).

Here MR is additional (or extra) revenue obtained from each of the additional (or extra) units (here, from each of extra 5 units).

Also, it follows from the definition of MR that MR is the rate of change of TR w.r.t. q.

Therefore, it can be written as: