Marginal Revenue

Marginal revenue (MR from English marginal revenue) is the income received as a result of the sale of an additional unit of production. Also called additional income, this is the additional income to the total income of the company obtained from the production and sale of one additional unit of goods. It makes it possible to judge the efficiency of production, as it shows the change in income as a result of an increase in output and sales of products by an additional unit.

Marginal revenue allows you to assess the possibility of recoupment of each additional unit of output. In combination with the marginal cost indicator, it serves as a cost guide for the possibility and feasibility of expanding the production volume of a given company.

Marginal revenue is defined as the difference total income from the sale of n + 1 units of goods and total income from the sale of n goods:

MR = TR(n+1) - TRn, or calculated as MR = ДTR/ДQ,

where DTR is the increment in total income; DQ - increment in output by one unit.

Perfect competition

Gross (total), average and marginal revenue s companies

This chapter assumes that a firm produces a single type of product. At the same time, in its behavior when making certain decisions, the company strives to maximize its profits. The profit of any company can be calculated based on two indicators:

• 1) total income (total revenue) received by the company from the sale of its products,
• 2) total costs, which the company bears in the process of producing these products, i.e.

where TR is the total revenue of the company or total income; TC - the total costs of the company; P - profit.

In conditions perfect competition for any volume of output, products are sold at the same price set by the market. Therefore, the average income of the firm is equal to the price of the product.

For example, if a company sold 10 units of products at a price of 100 rubles. per unit, then its total income will be 1000 rubles, and average income-- 100 rubles, i.e. it is equal to the price. Moreover, the sale of each additional unit of product means that total income increases by an amount equal to the price. If a company sells 11 units, then an additional unit of this product will bring it an additional income of 100 rubles, which is again equal to the price of a unit of product. It follows that under conditions of perfect competition the equality P = AR = MR is maintained.

Let us illustrate this equality with our example, presenting it in the form of table 1-5-1.

Table 1-5-1 - Total, average and marginal revenue of the company.

Table 1-5-1 shows that sales growth from 10 units. up to 11 units, and then up to 12 units. at a price of 100 rub. per unit does not change average and marginal income. Both remain equal to 100 rubles, i.e. the price of 1 unit.

Now let's present the average and marginal income of the company in the form of a graph (Fig. 1-5-1). He assumes that sales volume (Q) is plotted on the abscissa axis, and all cost indicators (P, AR, MR) are plotted on the ordinate axis. In this case, the average and marginal income of the company, as has already been established, remains constant for any value of Q - 100 rubles. Therefore, the average income curve and the marginal income curve coincide. Both of them are represented by one line parallel to the x-axis.

rice. 1 -5-1

As for the total income curve, it represents a ray emanating from the origin of the coordinate system (a line with a constant positive slope - see Fig. 1-5-2). The constant slope is explained by the constant price level of the product.

rice. 1 -5-2

Consideration of the total, average and marginal income of a company does not tell us anything about the profit that the company hopes for. Meanwhile, any company not only expects to make a profit, but also strives to maximize it. It would be wrong, however, to assume that profit maximization is based on the principle “the greater the output, the greater the profit.” In order to get maximum profit, the company must produce and sell the optimal volume of products.

There are two approaches to determining optimal output. Let's consider them using the example of a conventional company selling products at a price of 50 rubles. per unit.

The first approach to determining the optimal volume of a firm's output is based on comparing total income with total costs. In order to show what this approach consists of, let us first turn to Table. 1-5-2.

Table 1-5-2

First, costs exceed income (the company suffers losses). Graphically, this situation is expressed in the fact that the TC curve is located above the TR curve. When producing 4 units of output, the TR and TC curves intersect at point A. This indicates that total costs are equal to total income (the company receives zero profit). The TR curve then passes above the TC curve. In this case, the company makes a profit, which reaches its maximum value when producing 9 units of output. With further increase in production absolute value profit gradually decreases, reaching zero when 12 units are released (the TR and TC curves intersect again). The firm then enters an area of ​​unprofitable operations. Thus, critical production points should be established.

In Fig. 1-5-3 are points A (Q = 4) and B (Q = 12). If a firm produces products in a volume that is represented by values ​​located between these points, it makes a profit. Beyond the specified volumes, it suffers losses.

rice. 1 -5-3

The profit curve (P) reflects the ratio of the TR and TC curves. When the firm suffers losses (profit is negative), the P curve is located below the horizontal axis. It crosses this axis at critical volumes of output (points A" and B") and passes above it when a positive profit is received.

Optimal production volume equal to output products at which the firm maximizes profits. IN in this example it amounts to 9 units of product. At Q - 9, the distances between the TR and TC curves, as well as between the P curve and the horizontal axis, are maximum.

Now let's consider another approach to defining optimal level output and the equilibrium state of a competitive firm. It is based on comparing marginal revenue with marginal cost. In order to determine the optimal output, it is not necessary to calculate the amount of profit for all production volumes. It is enough to compare the marginal revenue from the sale of each unit of product with the marginal costs associated with the production of this unit. If marginal revenue (under perfect competition MR = P) exceeds marginal costs, then production should be increased. If marginal costs begin to exceed marginal revenue, then further increases in production should be stopped.

Let us turn again to the example presented in Table. 1-5-2. Should the firm produce the first unit of product? Of course, since the marginal income from its implementation (50 rubles) exceeds the marginal costs (48 rubles). In the same way, it must produce the second unit (MC = 38 rubles). In the same way, the marginal revenue and marginal costs associated with the production of each subsequent unit are compared. We are convinced that the ninth unit of the product should be produced. But already the costs associated with the production of the tenth unit (MC = 54 rubles) exceed the marginal income. Consequently, by releasing the tenth unit, the firm will reduce the amount of profit received, which consists of the excess of marginal revenue over the marginal cost of releasing each previous unit of product. From this we can conclude that the optimal volume of production for this company is 9 units. With this output, marginal revenue equals marginal cost.

The behavior of the company at various ratios of marginal revenue and marginal costs is presented in Table. 1-5-3.

Table 1-5-3

Thus, the rule for determining the optimal output of a firm when the price of the product is equal to the marginal product is expressed by the equality

Since under conditions of perfect competition price is equal to marginal revenue (P = MR), then

P = MS, i.e.

Equality of product price to marginal cost is a condition for equilibrium of a competitive firm.

Determining the optimal level of product output by a company based on the second approach can also be done graphically (Fig. 1-5-4).

rice. 1 -5-4

Conclusion

Gross (total) income (TR) is the product of the price of a product by the corresponding quantity of products sold.

In conditions of perfect competition, the firm sells additional units of output at a constant price, so the gross income graph looks like a straight ascending line (in this case, gross income is directly proportional to the volume of products sold).

Under imperfect competition, a firm must lower its price to increase sales. In this case, gross income on the elastic part of demand increases, reaching a maximum, and then - on the inelastic part - decreases.

Marginal revenue (MR) is the amount by which gross income changes as a result of an increase in the quantity products sold for one unit.

In a perfectly competitive market with perfectly elastic demand, marginal revenue is equal to average revenue.

Imperfect competition gives the firm a downward-sloping demand curve. In such a market, marginal revenue is less than both average revenue and price.

Average revenue (AR) is the average revenue from the sale of a unit of goods. It is calculated by dividing total income by the volume of products sold.

By selling its products, the company receives income, or revenue.

Income is the amount of money received by a company as a result of the production and sale of goods or services over a certain period of time. The amount of income and its change indicate the degree of efficiency of the company.

Distinguish total, average and marginal income.

Total (gross) income (TR ) There is total amount monetary revenue received by a company as a result of the sale of its products. It is calculated by the formula: TR = P Q, Where R– selling price per unit of production; Q– the number of units of products produced and sold. As we see, the amount of total income, other things being equal, depends on the volume of output and sales prices.

Average Income (AR) is the amount of cash revenue per unit of products sold. It is calculated by the formula: AR = TR / Q = (P  Q) / Q = P . The calculation of average income is usually used when prices change over a certain time interval or in cases where the range of products produced by a company consists of several or many goods or services.

Marginal Revenue (MR) is an increase in gross income resulting from the production and sale of an additional unit of product. It is calculated by the formula MR = TR/ Q, whereTR is the increase in gross income as a result of the sale of an additional unit of production;Q is the increase in production and sales volume per unit.

Comparison of marginal income and marginal costs for a commodity producer is important in developing its economic policy.

5. Company profit: concept and types

The profit of the company largely depends on the amount of income.

Profit represents the difference between total revenue and total costs, that is π= TR – TC, Where π – profit. The firm can calculate total profit (TR – TC), average profit (AR – ATC) and marginal profit (MR – MC).

Since there are accounting and economic costs, there are also accounting and economic profits.

Accounting profit – the difference between total revenue and external (accounting) costs. Let us recall that the latter include explicit, actual costs: wages, costs of fuel, energy, auxiliary materials, interest on loans, rent, depreciation, etc.

Economic profit - this is the part of the company’s income that remains after subtracting all costs from income: explicit (external) and implicit (internal), that is economic costs. Economic profit is also called net profit .

Economic profit is a certain excess of total income over economic costs. Its presence interests the manufacturer in this particular area of ​​business. At the same time, it encourages other firms to enter this field.

The essence of economic profit can be explained by the innovation of the entrepreneur, his use of innovative solutions in business affairs, and his willingness to bear full responsibility for the economic decisions made. Therefore, sometimes profit itself is defined as a payment for risk.

Depending on how income and costs are related, the company's profit can be positive(TR>TS), null(TR=TC) and negative(TR<ТС). Положительная прибыль означает, что фирма добилась самоокупаемости. Все издержки производства стали возмещаться полученным доходом.

Zero (normal) profit is income that reimburses the minimum costs of the entrepreneurial factor after the entrepreneur has reimbursed all production costs. It was previously noted that it is this profit that keeps the entrepreneur in this field of activity. However, at this moment there is no economic profit yet.

Negative profits mean the firm is making losses. The proceeds only partially cover production costs.

The monetary value of the activity of an economic entity is income. With the growth of this indicator, the following appear: the prospect of further development of the company, expansion of production and an increase in the volume of output of goods/services. To maximize profits and determine the optimal volume of output, management uses limit analysis. Since profit does not always have a positive trend with increasing output of goods/services, therefore, a profitable state of affairs in the firm can be achieved when marginal revenue does not exceed marginal cost.

Profit

All funds that are received into a business account during a specific period of time before taxes are paid are called income. That is, when selling fifty units of goods at a price of 15 rubles, a business entity will receive 750 rubles. However, in order to offer its products on the market, the enterprise purchased some production factors and expended labor resources. Therefore, the final result of entrepreneurial activity is considered to be profit. It is equal to the difference between total revenue and total costs.

From this elementary mathematical formula it follows that maximum profit values ​​can be achieved by increasing income and reducing expenses. If the situation is reversed, then the entrepreneur suffers losses.

Types of income

To determine profit, the concept of “total income” was used, which was compared with the same type of costs. If you remember what costs there are and take into account the fact of comparability of the two indicators, then it is not difficult to guess that, depending on the type of expenses of the company, there are similar forms of income.

Total revenue (TR) is calculated as the product of the price of the good and the volume of units sold. Used to determine total profit.

Marginal income is the additional amount of money to total income received from the sale of one additional unit of good. It is designated in world practice as MR.

Average revenue (AR) shows the amount of money that a company receives from the sale of one unit of product. In conditions of perfect competition, when the price of a product remains unchanged despite fluctuations in sales volumes, the average income indicator is equal to the price of this good.

Examples of determining miscellaneous income

It is known that the company sells bicycles for 50 thousand rubles. 30 pieces are produced per month. wheeled vehicles.

Total revenue is 50x30=1500 thousand rubles.

Average income is determined from the ratio of total revenue to the volume of products produced, therefore, with a constant price for bicycles, AR = 50 thousand rubles.

The example lacks information about the different costs of manufactured products. In this case, the value of marginal revenue is identical to average revenue and, accordingly, the price of one bicycle. That is, if the enterprise decided to increase the production of wheeled vehicles to 31, with the cost of the added benefit remaining constant, then MR = 50 thousand rubles.

But in practice, no industry has the characteristics of perfect competition. This model of a market economy is ideal and serves as a tool in economic analysis.

Therefore, expansion of production does not always affect profit growth. This is due to different dynamics of costs and the fact that an increase in product output entails a decrease in the price of its sale. Supply increases, demand decreases, and as a result, the price also decreases.

For example, increasing the production of bicycles from 30 pcs. up to 31 pcs. per month resulted in a reduction in the price of goods from 50 thousand rubles. up to 48 thousand rubles Then the marginal income of the company was -12 thousand rubles:

TR1=50*30=1500 thousand rubles;

TR2=48*31=1488 thousand rubles;

TR2-TR1=1488-1500= - 12 thousand rubles.

Since the increase in income turned out to be negative, therefore, there will be no increase in profit and it is better for the company to leave the production of bicycles at the level of 30 pieces per month.

Average and marginal costs

To obtain maximum benefits from business activities, management uses the approach of determining the optimal volume of output based on a comparison of two indicators. These are marginal revenue and marginal cost.

It is known that by increasing production volumes, costs for electricity, wages and raw materials increase. They depend on the quantity of the good produced and are called variable costs. At the beginning of production, they are significant, and as the output of goods increases, their level decreases, due to the effect of economies of scale. The sum of fixed and variable costs characterizes the total cost indicator. Average costs help determine the amount of funds invested in the production of a unit of good.

Marginal costs allow you to see how much money a firm will need to spend to produce an additional unit of a good/service. They show the ratio of the increase in total economic spending to the difference in production volumes. MS = TS2-TS1/Volume2-Volume1.

Comparison of marginal and average costs is necessary to adjust output volumes. If the feasibility of increasing production is calculated, at which marginal investment exceeds average costs, then economists give a positive response to the planned actions of management.

Golden rule

How can you determine the maximum profit margin? It turns out that it is enough to compare marginal revenue with marginal costs. Each unit of good produced increases total revenue by the amount of marginal revenue and total costs by the amount of marginal cost. As long as the marginal income exceeds similar costs, then the sale of an additionally produced unit of production will bring benefit and profit to the business entity. But as soon as the law of diminishing returns begins to operate and marginal spending exceeds marginal income, then a decision is made to stop production at a volume at which the condition MC=MR is met.

Such equality is the golden rule for determining the optimal volume of output, but it has one condition: the price of the good must exceed the minimum value of average variable expenditure. If, in the short run, the condition is satisfied that marginal revenue equals marginal cost and the price of output exceeds average total cost, then a case of profit maximization occurs.

An example of determining the optimal output volume

As an analytical calculation of the optimal volume, fictitious data was taken and presented in the table.

Volume, units	Price (P), rub.	Revenue (TR), rub.	Costs (TC), rub.	Profit (TR-TC), rub.	Marginal income, rub.	Marginal costs, rub.
10	125	1250	1800	-550
20	115	2300	2000	300	105	20
30	112	3360	2500	860	106	50
40	105	4200	3000	1200	84	50
50	96	4800	4000	800	60	100

As can be seen from the data in the table, the enterprise is characterized by a model of imperfect competition, when, with an increase in supply, the price of products decreases and does not remain unchanged. Income is calculated as the product of volume and cost of the good. The total costs were known initially and, after calculating income, they helped determine profit, which is the difference between two values.

The marginal values ​​of costs and income (the last two columns of the table) were calculated as the quotient of the difference in the corresponding gross indicators (income, costs) per volume. While the enterprise's output is 40 units of goods, maximum profit is observed and marginal expenses are covered by similar income. As soon as the business entity increased its output to 50 units, a condition occurred in which costs exceeded income. Such production has become unprofitable for the enterprise.

Total and marginal income, as well as information about the value of the good and gross costs, helped to identify the optimal volume of output at which maximum profit is observed.

For any price reduction, an area similar to the area ABC in Fig. 2, equals Q 1 (Dр). This is the income lost when a unit of goods is not sold at a higher price. Square DEFG equals P 2 (DQ). This is the increase in income from the sale of additional units of a good minus the income that was sacrificed by giving up the opportunity to sell previous units of the good at higher prices. For very small changes in price, changes in total revenue can therefore be written as

where Dр is negative and DQ is positive. Dividing equation (2) by DQ, we get:

(3)

where Dр/DQ is the slope of the demand curve. Since the demand curve for a monopolist's product is downward sloping, marginal revenue must be less than price.

The relationship between marginal revenue and the slope of the demand curve can be easily converted into a relationship that relates marginal revenue to the price elasticity of demand. The price elasticity of demand at any point on the demand curve is

Substituting this into the marginal revenue equation, we get:

Hence,

(4)

Equation (4) confirms that marginal revenue is less than price. This is true because E D is negative for a downward sloping demand curve for the monopolist's output. Equation (4) shows that, in general, the marginal revenue of any output depends on the price of the good and the elasticity of demand with respect to price. This equation can also be used to show how total income depends on market sales. Let's assume that e D = -1. This means unit elasticity of demand. Substituting e D = -1 into equation (4) gives zero marginal revenue. There is no change in total income in response to a change in price when the price elasticity of demand is -1. Likewise, when demand is elastic, the equation shows that marginal revenue is positive. This is so because the value of e D would be less than -1 and greater than minus infinity when demand is elastic. Finally, when demand is inelastic, marginal revenue is negative. Table 1.2.2 summarizes the relationships between marginal revenue, price elasticity of demand, and total revenue.

TABLE 1.2.2. Marginal revenue, total revenue, and price elasticity of demand for a product

You can see that the relationship implied by equation (4) is logical by analyzing how total revenue along the linear demand curve and the corresponding marginal revenue curve for the monopoly vary along with the quantity demanded by the buyer. Recall that demand is price elastic when a reduction in price leads to an increase in total income. If total revenue increases when price decreases, then marginal revenue must be positive. Thus, whenever the marginal revenue from a price decrease is positive, demand is price elastic. This is so because negative marginal revenue implies that a decrease in price leads to a decrease in total revenue. Finally, when marginal revenue is zero, a change in price does not change total revenue and demand has unit elasticity. This is shown at the bottom of Fig. 3. Maximum total revenue is extracted when marginal revenue is zero. At this point on the linear demand curve, the price elasticity of demand is -1.

Equation (4) also implies that the more elastic demand is, the smaller the difference between marginal revenue and price. In the extreme case, if demand is infinitely elastic, then the difference between price and marginal revenue becomes zero. This is so because the value of 1/E D in equation (4) tends to zero if E D tends to minus infinity. This is consistent with the fact that for a competitive firm, price equals marginal revenue.

We also note from the table. 1.2.1 and according to the graphs in Fig. 2 and 3 that marginal revenue falls faster than price as the monopolist produces more of the good. For a linear demand curve, marginal revenue will decline at exactly twice the rate of price. Note that for every $100,000 reduction in the price charged per concert, after the first concert, the marginal revenue always decreases by $200,000. Marginal revenue becomes zero at the level of output corresponding to half the quantity of goods (services) that would be sold at a price equal to zero. (For a linear demand curve, the slope of the curve is constant. From equation (3) it can be seen that the change in marginal revenue in response to any change in Q is such that:

D mR/ DQ = D [P + Q( D R/ DQ )] / DQ = (Dр + DQ(DP/DQ))/DQ = 2(DP/DQ). The rate of change of MR relative to Q is twice the rate of its change relative to Q.

Rice. 3. Demand for a monopolist, marginal revenue, total revenue and elasticity

With a linear demand curve, when more of a good is sold, marginal revenue falls at twice the rate of price. When marginal revenue is positive, total revenue increases as price decreases. When marginal revenue is negative, total revenue decreases whenever the price decreases. Total revenue is maximum when marginal revenue MR = 0. When MR > 0, demand is elastic. When M.R.< 0, спрос является неэластичным. Спрос обладает единичной эластичностью, когда МR = 0, а общий доход в этой точке достигает максимума.

Profit maximization by monopoly firms in the short run

Competitive firm maximizes profit by adjusting the quantity sold at the market price so that the marginal cost of production equals the marginal revenue. Although a monopoly can influence the price of its product, the marginal analysis of profit maximization is the same under both competition and a monopoly. Profit maximization implies that marginal revenue must equal marginal cost of the quantity produced. However, the monopolist's marginal revenue from additional output is always less than the price at which this quantity is sold. (For a company with monopoly power the price it can charge is a function of the quantity of goods offered for sale, Q. Profit is p = PQ - TC, since P = f(Q) and TC = f(Q), dp/dQ=P+Q( dP/dQ)-dTC/dQ. Assuming that necessary condition existence of the second derivative is satisfied, the maximum profit is achieved where [P + Q (dP/dQ)]=dTC/dQ. Left side equality is marginal revenue. This marginal revenue expression is similar to equation (3) for cases where changes in Q are infinitesimal. Right side equation represents marginal cost.)

Table 1.3.1 provides data on the costs of a concert performance. The total cost per year for all performances is shown in the third column of the table. The fourth column shows the average cost per performance. Marginal cost is calculated in the fifth column as the change in total cost from each additional submission. The sixth column reproduces the data on marginal income from table. 1.2.1. Fixed (economic - Ed.) costs are equal to $100,000 per year. They consist of depreciation and interest (forgone interest on the provision of the corresponding funds on a loan, for example, when investing them in a bank. - Ed.) on durable equipment - such as musical instruments, sound equipment, costumes, vehicles used for transporting personnel and equipment (including bodyguards). Even if there are no concerts at all for a year, you still bear these costs. The last column is total profit, therefore indicating that if you decide not to play any concerts, you will lose $100,000 per year. If you price your shows at more than $1 million each, there will be no buyers for them. You will therefore lose an amount equal to your fixed costs.

If your price is $1 million, you will find a buyer for one show per year. Total costs will be $500,000. You will therefore make $500,000 in profit from this gig. The marginal cost of the first concert is $400,000. They are equal to the average variable costs this concert. They consist of the salaries paid to your assistants, accompanists, bodyguards who protect you on the road, and the cost of fuel for the transport in which you move from one place to another. The maximum income from the first concert is $1 million. The marginal profit indicated in the penultimate column of the table. 10.3 is therefore equal to $600,000. As a reminder, marginal benefit is the difference between marginal revenue and marginal cost.

After the first show, marginal revenue falls below price because you have to lower your target price to be able to perform more shows. Gross income from two concerts, according to table. 10.3, equal to 1.8 million dollars. You must value your concerts at $900,000 each if you want to sell two shows a year to the promoters.

The total cost of the two concerts is $1 million. The marginal cost of the second concert is therefore $1 million less $500,000 divided by one. This gives marginal cost. Since the marginal revenue from the second gig is $800,000, your marginal benefit is positive. In this case, your marginal profit is $300,000, and your total profit increases from $500,000 per year to $800,000.

As long as marginal revenue exceeds marginal cost of the gig, profits increase. Profit begins to decline as soon as marginal cost exceeds marginal revenue. You will increase your annual profits if you increase your concert output per year. This is true because the marginal cost of the third concert is $550,000, while its marginal revenue is $600,000. Your marginal profit for the third concert is therefore $50,000, and your total profits rising to $850,000 per year. If you wanted to do three concerts a year, then you would have to value each of them at $800,000.

Are you interested in lowering your price below $800,000? If you brought the price down to $700,000, you could do four shows a year. But this shouldn't be done. The marginal cost of the fourth concert would be $700,000, but its marginal revenue would be only $400,000. Your marginal profit would be,

TABLE 1.3.1 Costs and determination of the volume of commodity output of a profit-maximizing monopoly

hence $300,000. By lowering your price to $700,000, you would reduce your profits from $850,000 to $550,000 per year.

As indicated in table. 1.3.1, for any output greater than three concerts per year, marginal cost will exceed marginal revenue. Yours equilibrium price equal, therefore, to $800,000 per concert. The amount of equilibrium output that will be demanded at this price is three. Profits at this price are $850,000 per year. The marginal cost of the concert at this output is $550,000. Therefore, at equilibrium output, marginal cost is less than price. This follows from the fact that the marginal revenue under a monopoly is less than the price.

Related information.

Limit values ​​may seem like something purely theoretical and unrelated to the actual conduct of business at an enterprise only due to the lack of practice in working with them during the Soviet and perestroika periods. In fact, limit values ​​are the most effective way track opportunities for potential profit increase, which is what all enterprises strive for without exception. As for their logic and calculation, it is nothing more complex than elementary algebra.

Marginal revenue is the amount a company receives from selling an additional unit of a product. It is one of the main limiting values ​​that has a direct connection with profit and price - two the most important indicators company activities. Marginal revenue is the amount that has different meaning depending on the company. Thus, to carry out analysis using marginal revenue, it is necessary to compile a table reflecting the change in this value as sales volumes change.

To make it clearer, let's give a definition of marginal income. Marginal revenue is the change in a company's total revenue resulting from an increase in sales by one conventional unit. For example, your company sold 20 units of products for 10 rubles each. Then they increased by one, but the price remained the same. In this case, the marginal income will be equal to 20 rubles.

It may seem that with a constant price, marginal revenue will always be equal to the value of this very price, and therefore it makes no sense to carry out further calculations of this indicator. However, this is not true. As you know, with an increase in sales volumes, an enterprise is forced to reduce the price in order to attract those buyers who will not buy the product at this price. It turns out that you benefit from increased volumes, but you lose from the fact that all goods are slightly cheaper. Marginal revenue, also known as marginal revenue, is used to determine which outweighs the gain or loss.

Let's give an example: as a result of an increase in sales volumes from twenty units to twenty-one units of production, the price of one unit decreased to 9 rubles and 50 kopecks. In this case, our new one will be equal to 199.5 rubles, which is 50 kopecks less than the income with the old volumes. It turns out that the marginal income is -50 kopecks. As it turned out, increasing sales volumes is not profitable for the enterprise.

The above example showed how limit values ​​are used in management. If the revenue thresholds fall below zero, it means that the company needs to stop and curb the growth of production volumes in order to keep prices at an acceptable level. As long as marginal returns remain positive, there is scope for increasing volumes.

However, this analysis is somewhat incomplete. If marginal revenue is positive, we need to analyze businesses as well. Marginal costs show how much costs have changed as a result of increased sales volumes. According to elementary logic, this value will be positive, since each new unit of production requires costs for its production. On the other hand, the more units of a product are produced, the less there is per unit of output until production capacity not fully loaded.

In any case, if marginal revenue is greater than marginal cost, then we receive marginal profit, which means we need to increase sales volumes. As a rule, this happens until new production equipment is needed or active sales reduce prices on the market.