In economics, there is the term called as the marginal revenue that has got a great significance. It is the additional revenue that can be generated by the increase in the level of your sales. This is considered only for one unit of whatever product you are considering.
Explanation: It is also called the unit revenue that is generated by selling off the last product. In the case of a market that has perfect competition, the additional revenue that is got by selling one unit if the good is equal to the price that the firm is capable of charging the consumers.
This is in the case of the perfect competition as the firm cannot change the price that is already the industry price for that product. But in the case of a monopoly, the scenario completely changes. It is the company in the monopoly that decides on many things. In order to sustain in the industry, it may even have to reduce the price of all the units in order to increase sales of the product, even if that means a single unit.
Hence in the case of monopoly, the marginal revenue generated by the firm is always found to be lesser than that of the price that is being charged from the consumers.
The marginal revenue is defined as the ratio of change in the total revenue (TR) to the change that is seen in the quantity (Q) for a single unit.
It can be expressed as follows:
In the case of a firm that is in the perfectly competitive market, there is no change that is seen in the price of the product with a change in the quantity of the product that is sold. In this case, we can see that the marginal revenue that is generated is equal to the price of the commodity.
In the case of a firm that is monopolistic, the price at which the commodity is sold is found to be reduced with the quantity of that product being sold. In this situation, we can see that the value of the marginal revenue is lesser than the price at which the commodity is being sold to the consumers.
The marginal revenue curve:
This is a curve that which changes based on the same factors as that of the demand curve. These would be the change in income, the changes in complementary or the substitute goods, the changes in the rate at which the goods are sold, and so on.