Marginal Revenue

What is Marginal Revenue?

Marginal revenue in the Indian context is the additional income generated from selling one more unit of a good or service within the Indian market. It reflects the incremental change in total revenue from the sale of an extra unit and is essential for businesses to determine optimal production levels and pricing strategies tailored to the Indian economy.

Marginal Revenue Example

Consider an Indian company that manufactures and sells electric scooters. If the company sells 500 motorcycles at ₹50,000 each, the total revenue amounts to ₹2,50,00,000. If the company then sells an additional motorcycle, making it 501 motorcycles, and the total revenue increases to ₹2,50,50,000, the marginal revenue from the sale of the 501st motorcycle is ₹50,000.

Marginal Revenue Formula

The formula for calculating marginal revenue remains the same:

Marginal Revenue (MR)= ΔQuantity (Q)/ΔTotal Revenue (TR)

Using the example above:

MR= 2,50,50,000-2,50,00,000/501-500
= 50,000/1
= ₹50,000

Total Revenue vs. Marginal Revenue: Distinguishing Between

Total revenue refers to the overall income generated from selling goods or services within the country. It is determined by multiplying the sold quantity by the unit price. Conversely, marginal revenue focuses on the extra income earned from selling one additional unit.

For instance, if an Indian company sells 200 units of a product at ₹1,000 each, the total revenue amounts to ₹2,00,000. If the sale of the 201st unit raises the total revenue to ₹2,01,500, the marginal revenue from the 201st unit is ₹1,500.

Difference Between Average Revenue and Marginal Revenue

Average revenue (AR) represents the income generated per unit sold and is determined by dividing the total revenue by the number of units sold. Marginal revenue (MR), on the other hand, is the extra income gained from selling an additional unit.

Formula for Average Revenue:

Average Revenue (AR)= Total Revenue/Quantity

For example, if the total revenue from selling 1,000 units is ₹5,00,000, the average revenue is:

AR= 5,00,000/1000
= ₹500

In a perfectly competitive market, the average revenue equals the marginal revenue because the price remains constant for each additional unit sold. However, in an imperfect competition scenario in India, marginal revenue typically decreases as more units are sold due to the downward-sloping demand curve.