Enter the total change in revenue and the total change in quantity of units sold to calculate the marginal revenue.
What is marginal revenue?
Marginal revue is the per unit value increase from selling an additional unit in business. In other words, if your revenue increase and your number of units sold also increases, then the marginal revenue will be the per unit increase. The formula for this change can be calculated as follows:
MR = CTR / CIQ
- Where MR is marginal revenue
- CTR is change in total revenue
- CIQ is change in quantity.
Marginal revenue has units of dollars, total revenue has units of dollars, and change in quantity is unitless.
How to calculate marginal revenue
The following example will go over how to calculate marginal revenue in a practical sense with regard to a business. For this example, we will assume that you own a retail store that sells only one type of good.
- The first step is to determine the total change in revenue that has occurred over some time period. For this example, since we only sell one product, it’s as simple as taking a look at the total revenue change. For businesses that sell more than one product, you must only measure the revenue gain from the specific product being analyzed. We will say we’ve had a $20,000.00 increase in the last 30 days.
- Next, we need to determine the increase in units or our good. As mentioned int he bullet point above, normally you may need to do some accounting to determine the exact quantity increase of a certain good, but our business only sells one product. Our increase in units is the total increase. We will assume 100 extra units sold.
- Finally, enter that information into the equation above. $20,000.00/100 = 200.
- Analyze the results and apply to you business.
There is not best value for marginal revenue. The best value will be dependent on your business and goals.