All microeconomics formulas6/1/2023 ![]() On the other hand, businesses may decide to cease production when marginal revenue is less than marginal cost.Įconomic theory states that perfectly competitive firms will continue to produce output until marginal revenue equals marginal cost. Hence, companies seeking to maximize profits must increase their production until marginal revenue equals marginal cost (MR=MC). Since marginal revenue is subject to the law of diminishing returns, it will eventually slow down with an increase in output level.īoth large and small businesses can examine their marginal revenue to determine their level of earnings based on extra output units sold. ![]() This is useful for businesses to balance their production output with their costs to maximize profit. Marginal revenue is the revenue generated for each additional unit sold relative to marginal cost (MC). Marginal revenue (MR) is an economic concept used in business to optimize profits. Audit-proof revenue recognition with ProfitWell Why does your business need to calculate marginal revenue?Ħ. Marginal revenue and other economic metricsĥ.
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