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Marginal revenue

Updated: Aug 20, 2021

The change in a firm’s total revenue which results from changing output sold by one unit. Marginal revenue to a firm will either be equal to or below price. If the price of the good is the same for whatever quantity the firm sells, i.e. if the firm is in perfect competition, then the increase in revenue from seiling one more unit is equal to price. If, however, the attempt to seil an additional unit of output forces the firm to reduce price on all the output it sells, then marginal revenue will equal the new price less the fall in revenue on the units which would have been sold at the higher price. The concept of marginal revenue plays an important role in theories of imperfect competition, since equality of marginal revenue and marginal cost determines the’ profit­maximizing equilibrium of the firm.

Reference: The Penguin Dictionary of Economics, 3rd edt.

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