What does marginal revenue represent?

• A. Total revenue from all units sold
• B. Revenue per unit sold on average
• C. The incremental revenue from selling one additional unit
• D. The maximum possible revenue if all units are sold

Answer: (C)

Marginal revenue is the incremental money a firm earns from selling one more unit. It’s the change in total revenue when quantity sold increases by one. For example, if total revenue rises from 10 to 18 dollars when you add one unit, the marginal revenue of that additional unit is 8 dollars. This concept explains why marginal revenue can be less than the price: lowering the price to sell more units often reduces revenue on all units, not just the extra one. In perfect competition, marginal revenue equals the price, while in other market structures MR typically declines as output rises. Firms use MR to decide how much to produce, aiming for the output level where marginal revenue equals marginal cost.