Final answer:
Marginal revenue is calculated by dividing the change in total revenue by the change in quantity sold, not by taking the derivative. It is used by firms to make informed production and pricing decisions, as businesses aim to produce up to the point where marginal cost equals marginal revenue for profit maximization.
Step-by-step explanation:
Marginal revenue is a crucial concept in economics, particularly in the study of how firms make decisions about production and pricing. In the context of the information provided, marginal revenue is found by calculating the change in total revenue that results from the sale of an additional unit of output. It's important to note that the calculation of marginal revenue does not involve taking the derivative, which is a mathematical operation used in calculus. Instead, marginal revenue is obtained by a simple algebraic method: dividing the change in total revenue by the change in the quantity sold. The process begins with analyzing data showing combinations of price and quantity that correspond to points on the demand curve. By multiplying these two figures, one can obtain the total revenue. This figure illustrates what a firm earns from selling its goods at various levels. To calculate marginal revenue, one must look at how total revenue changes as more units are sold—this is the incremental revenue gained from selling one more unit. Imagine a farmer who experiments with increasing production levels.
If the farmer increases the quantity of products from 60 to 70, the additional revenue generated from this increase is the marginal revenue. Should this marginal revenue exceed the cost associated with producing those additional units (marginal cost), the farmer's profit increases, providing an incentive to continue increasing production. When marginal revenue equals marginal cost, this indicates the point of maximum profit, where each additional unit sold neither increases nor decreases profit. If the farmer further increases production only to find that the resulting marginal costs exceed the marginal revenues, the profit diminishes. This principle is instrumental for businesses to determine the optimal level of output and the price at which to sell their products. Overall, marginal revenue helps firms make informed production and pricing decisions. If marginal revenue exceeds marginal cost, a firm should increase production, and if marginal cost exceeds marginal revenue, it should decrease production. This balance is fundamental to achieving profit maximization.