Marginal Revenue

Marginal Revenue refers to the additional revenue generated from selling one more unit of a product or service. It is used to assess how increasing sales volumes affect a company's total revenue. In most cases, marginal revenue decreases as a company produces and sells more units, due to the principle of diminishing returns. However, understanding marginal revenue helps businesses determine the optimal production level that maximizes profit.

The formula for Marginal Revenue is:

Marginal Revenue = Change in Total Revenue / Change in Quantity

For example, if a company generates AED 120,000 in revenue from selling 1,000 units and AED 130,000 from selling 1,100 units, the marginal revenue for the additional 100 units is AED 10,000. Marginal revenue is essential for determining pricing strategies, and it is especially important for businesses that rely on variable pricing models.