How the Marginal Revenue Calculator works
Marginal revenue is the extra revenue a seller earns from selling one more unit of output. It is the core building block economists and pricing analysts use to find the output level that maximizes profit — a firm keeps expanding production as long as marginal revenue exceeds marginal cost, and stops once the two are equal.
The formula
Given an initial quantity Q1 sold at price P1, and a new quantity Q2 sold at price P2, total revenue at each point is TR = P × Q. Marginal revenue is the change in total revenue divided by the change in quantity:
MR = (TR2 − TR1) / (Q2 − Q1)
This is the standard discrete (arc) approximation of marginal revenue used in introductory economics and business courses. The calculus definition treats marginal revenue as the derivative of the total revenue function, dTR/dQ; the formula above approximates that slope using two observed price-quantity points instead of a continuous demand curve.
Worked example
Suppose a seller moves 100 units at $50 each, then increases volume to 120 units at $47 each. Initial total revenue is 100 × $50 = $5,000; new total revenue is 120 × $47 = $5,640. The change in quantity is 20 units and the change in revenue is $640, so marginal revenue is $640 / 20 = $32 per unit — well below the $47 price on the new units, because the lower price applied to all 120 units, not just the extra 20.
Why marginal revenue is usually below price
For a price-taking firm in a perfectly competitive market, marginal revenue equals price: selling one more unit does not require lowering the price on units already sold. But most real sellers face a downward-sloping demand curve — to sell more, they cut price across the board. That means the revenue gained from the extra unit is partly offset by the revenue lost on every unit that would have sold at the higher price anyway, which is why marginal revenue typically sits below the new unit price.
When marginal revenue turns negative
If the price cut required to move additional units is steep enough, the revenue lost on existing sales can outweigh the revenue gained from new sales, and total revenue actually falls even though quantity rose. That produces a negative marginal revenue — a signal that demand is inelastic at that price range and further discounting is destroying revenue rather than growing it.
What this calculator does not do
This tool computes marginal revenue directly from two observed price-quantity points; it does not fit a demand curve, estimate elasticity, or account for costs. Comparing marginal revenue with marginal cost (from your own cost data) is a separate step needed to judge whether expanding output actually improves profit.