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March 5th, 2008, 07:17 AM   #1
Joined: Oct 2007

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quick hw question

what is the equation for MR(marginal revenue)?
axelle is offline  
May 17th, 2008, 10:44 PM   #2
Joined: May 2008

Posts: 21
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Let T = total revenue, P = price, and Q = quantity then

T = P * Q call this (*)

ie if I am selling a widget that costs 10 bucks and I sell 10 of them

T = 10 * 10 = $100

Obvious so far? The meaning of marginal revenue is the change in total revenue per unit of a given item. In our above example, Marginal Revenue would characterize the change in revenue provided that we produced one more widget. Sound like a derivative doesn't it? To obtain Marginal Revenue we proceed by differentiating (*) with respect to quantity Q:

MR = dT / dQ = dP/ dQ * Q + dQ /dQ * P = dP/ dQ * Q + P

and there is your formula for marginal revenue. Remember the underlying idea that MR is a derivative of total revenue. If you can keep that in mind you can derive the above formula at anytime without memorization.
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question, quick

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