Marginal revenue
Marginal revenue is the change in total revenue from selling one more unit or a small increase in quantity. With a downward-sloping demand curve, selling additional units can require reducing the price on other units too, so marginal revenue can be below selling price. For P = a − bQ, total revenue is aQ − bQ² and marginal revenue is a − 2bQ. Match the model and feasible quantity range.
Worked example
If P = 50 − 0.10Q, MR = 50 − 0.20Q. At Q = 100, price is $40 but marginal revenue is $30.
Common mistake
Do not set marginal revenue equal to selling price when a price reduction affects all units sold.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | PM | Direct | September 2026–June 2027 |