Marginal revenue ( MR )

LIVIN VARGHESE
P19129
PGDM A
 Eachseller has sufficient market
power to set the selling price higher
and sell less or set the selling price
lower and sell more.
Total revenue ( TR )
 Total revenue ( TR ) is the total amount of
money(or some other good) that a firm
receives from the sale of its goods. It the firm
practices single pricing rather than price
discrimination, TR = total expenditure of the
consumer = P x Q
Average revenue ( AR )
 Average revenue ( AR ) is the total amount of
money(or some other good) that a firm
receives from the sale divided by the number
of units of goods sold.
 AR = TR/Q, since TR=P x Q, then AR = P for

single pricing practice

Marginal revenue ( MR )
 Marginal revenue ( MR ) is the change in total
revenue resulting from selling an extra unit of
goods.
 MR = TR/Q, where TR = change in TR

due to change in Q, Q = change in Q

 For a certain known quantity transacted, the area under the MR and
above the horizontal axis is the T R .
 (I.e. the sum of the Marginal Revenues of all units of goods, I.e. area
0ACQ)
 Also, TR = AR x Q, I.e. area 0PBQ A
 The slope of MR is twice the slope of AR

B
P

0 Q MR AR
 The slope of MR is twice the slope of AR