How To Calculate Marginal Revenue

In order to calculate marginal revenue, you must first know what it means.  Marginal revenue is basically the extra money you would get for selling an extra unit of something.

First thing you need to know when calculating the marginal revenue is the formula, MR (2 things) =TR (2 things)-TR (1 thing).  Remember MR is marginal revenue and TR is total revenue.  The formula says that if you take the TR from selling two things and subtract it from the TR of selling one thing you will get the MR for selling two things.

Next thing you would want to do is try an example.  Before you can do an example though you need to decide what the variables will be.  Ok so let’s say you want to sell a shirt for $10.  Then obviously the profit from selling two shirts would be $20.

Now you would want to do the example, working through the formula MR (2 shirts) =TR (2 shirts)-TR (1 shirt).  This time fill in the prices though.  So if TR=$20 for 2 shirts and $10 for one shirt.  The marginal revenue would $10.  In case you don't see how I got $10 just take out all the letters, and do the math that’s left.

There is another way to calculate marginal revenue, and this is dependent upon how advanced you are, this is as a derivative.  The formula for that is TR=P (price demanded) times Q (quantity).  The way you use this to get your MR is to work through the formula to get your TR.  Once you have done this there are a few formulas that get you the MR.  I think the easiest one is MR=TR/Q.

You might want to work through an example of this too.  Let’s say the quantity is 10 shirts, your price demanded is $10.  If you use the formula so you P is $10 times your quantity which is 10 shirts.  So your TR would be $100.  So $100 is your TR.  Then just use the formula MR=TR/Q.  If $100 is your TR just divide that by your Q which is 10 shirts.  This will bring you to your MR which is $10.

I really hope this helps you out.  I know calculating marginal revenue can be a little bit much to understand.  So hopefully I was able to break it down to where you can better understand it somewhat.  Just remember the basic formula of MR (2 things) =TR (2 things)-TR (1 thing), and you should be just fine.


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