Marginal Revenue and Marginal Cost Practice Question

From Mike Moffatt, former About.com Guide

Part 2: Marginal Revenue (MR)

The Dictionary of Economics Terms defines marginal revenue as:

The revenue a company gains in producing one additional unit of a good.

In this question, we want to know what the additional revenue the firm gets when it produces 2 goods instead of 1 or 5 goods instead of 4.

Since we have the figures for total revenue, we can easily calculate the marginal revenue from selling 2 goods instead of 1. It is simply:

MR(2nd good) = TR(2 goods) - TR(1 good)

Here the total revenue from selling 2 goods is $10 and the total revenue from selling only one good is $5. Thus the marginal revenue from the second good is $5.

When you do this calculation, you'll note that the marginal revenue is always $5. That's because the price you sell your goods for never changes, thus in this case the marginal revenue is always equal to the unit price of $5.

Previous

• Marginal Revenue and Marginal Cost Practice Question
• Marginal Revenue and Marginal Cost Practice Question - Part 1
• Marginal Revenue and Marginal Cost Practice Question - Part 2
• Marginal Revenue and Marginal Cost Practice Question - Part 3
• Marginal Revenue and Marginal Cost Practice Question - Part 4
• Marginal Revenue and Marginal Cost Practice Question - Part 5

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