Question

Explain revenue, marginal revenue, and marginal cost. Provide some examples.

Answer 1

Total revenue- total revenue refers to the amount of money realized by a firm on the sale of a commodity. Total revenue is expressed as follows:

TR = P x Q

E.g. A firm sells 100 units of a particular commodity for Rs. 10 each. If you were to calculate the amount realized by the firm, the answer is simple – Rs. 1,000 (100 x 10). This is the total revenue for the firm.

Marginal revenue - Marginal revenue (MR) is the change in total revenue resulting from the sale of an additional unit of a commodity.

For example, consider a firm selling 100 units of a commodity and realizing a total revenue of Rs. 1,000. Further, it realizes a total revenue of Rs. 1,200 after selling 101 units of the same commodity. Therefore, the marginal revenue is Rs. 200.

Marginal cost- The marginal cost is the cost of producing one more unit of a good. E.g if cost of producing 10 units is 100 dollars and cost of producing 11 units is 110 dollars then marginal cost of producing 11th unit is 10 dollars.