What this calculator does
Marginal revenue is the extra revenue a business earns from selling one additional unit. The marginal revenue formula compares total revenue at two output levels and divides the change in revenue by the change in quantity, which is different from the average price per unit, and often lower than it once a business has to cut prices to move extra volume.
The figure matters because pricing and production decisions should be made on the margin, not the average. A business that keeps producing past the point where marginal revenue falls below marginal cost is losing money on every extra unit sold, even while total revenue and total profit both still look healthy on paper.
The formula
Subtract total revenue at the lower output level from total revenue at the higher one, then divide by the matching change in quantity. The result is the extra revenue earned, on average, for each additional unit sold across that range.
| Term | Meaning |
|---|---|
| Marginal revenue | The extra revenue from one more unit sold: change in total revenue ÷ change in quantity. |
| Total revenue | Price × quantity at a given output level, the full amount taken in at that level of sales. |
| Quantity | The number of units sold at each of the two output levels being compared. |
The inputs explained
| Field | What to enter |
|---|---|
| Total revenue at the lower output level ($) | Total revenue at the lower of the two output levels being compared. |
| Quantity sold at that level | The quantity sold that produced that lower-level revenue. |
| Total revenue at the higher output level ($) | Total revenue at the higher output level. |
| Quantity sold at that level | The quantity sold that produced that higher-level revenue. |
When to use it
Deciding whether to expand output
Comparing marginal revenue against marginal cost for the same extra units shows whether producing more actually adds profit, or just adds revenue while costing more than it brings in.
Explaining why prices fall as volume rises
If reaching extra customers requires a lower price on every unit, not just the new ones, marginal revenue can fall well below the average price, and even turn negative at high enough volumes.
Setting a production target
A business aiming to maximise profit, rather than revenue, generally wants to keep producing only as long as marginal revenue exceeds marginal cost, and stop at the point where the two meet.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How marginal revenue changes as extra revenue from more units shrinks
A fixed starting point of 1,000 units at $80,000, against a range of revenue outcomes at the higher 1,100-unit level.
| Revenue at 1,100 units | Marginal revenue per unit | Average price at higher output |
|---|---|---|
| $82,000 | $20.00 | $74.55 |
| $85,000 | $50.00 | $77.27 |
| $87,000 | $70.00 | $79.09 |
| $88,000 | $80.00 | $80.00 |
| $89,000 | $90.00 | $80.91 |
| $90,000 | $100.00 | $81.82 |
How marginal revenue changes as the extra units sold changes
The same starting point and the same $7,000 of extra revenue, spread across a different number of extra units each time.
| Quantity at higher output | Marginal revenue per unit | Change in quantity |
|---|---|---|
| 1,050 | $140.00 | 50 |
| 1,070 | $100.00 | 70 |
| 1,100 | $70.00 | 100 |
| 1,140 | $50.00 | 140 |
| 1,175 | $40.00 | 175 |
| 1,200 | $35.00 | 200 |
Questions
How is marginal revenue different from average revenue?
Average revenue is total revenue divided by total units, effectively the average selling price. Marginal revenue looks only at the change between two output levels, which is what actually matters for deciding whether producing one more unit is worthwhile.
Why can marginal revenue be lower than the selling price?
If a business has to lower the price on all units, not just the extra ones, to sell more, the drop in revenue from the price cut on existing units eats into the gain from the new units, pulling marginal revenue below the new selling price.
Can marginal revenue be negative?
Yes. If a large enough price cut is needed to sell extra units, the revenue lost from cutting the price on everything already being sold can outweigh the revenue gained from the additional units, giving a negative marginal revenue.
How does marginal revenue relate to marginal cost?
A business generally maximises profit by producing up to the point where marginal revenue equals marginal cost. Producing beyond that point adds more to cost than it brings in as revenue, even if both totals are still rising.
To compare against the cost side of the same decision, see the marginal cost calculator. For a broader read on trade-offs between choices, see the opportunity cost calculator.