Question

Which of the following best describes marginal revenue?

Multiple choice question.

The sum of revenue received by producing at a certain level of output

The cost that an additional unit of output contributes to total cost

The level of output needed to produce revenue that covers all of the firm's costs

The revenue that an additional unit of output contributes to total revenue

Answer 1

Marginal revenue is the additional income generated from selling one more unit of a product and is calculated as the change in total revenue divided by the change in quantity. It helps businesses decide if increasing output is profitable by comparing it to marginal cost.

Step-by-step explanation:

The correct answer to the question of which of the following best describes marginal revenue is: The revenue that an additional unit of output contributes to total revenue. Marginal revenue is calculated as the change in total revenue divided by the change in quantity. This concept is crucial for businesses as it helps determine the additional income generated from selling one more unit of a product or service.

For instance, if at an output of 4 units, the marginal revenue is 600, it means that the sale of that fourth unit increases the total revenue by $600. When deciding whether to increase production, a firm will compare the marginal revenue to the marginal cost to determine if the additional unit adds to overall profits.