Final answer:
Marginal revenue (MR) is calculated by the change in total revenue (ΔTR) divided by the change in quantity (ΔQ). As an example, if increasing quantity sold from 1 to 2 units raises total revenue from $1,200 to $2,200, MR would be $1,000. MR is used to find the profit-maximizing quantity, where MR equals MC.
Step-by-step explanation:
The formula for marginal revenue (MR) in terms of changes in total revenue (ΔTR) and changes in quantity (ΔQ) is calculated as the change in total revenue divided by the change in quantity. To put it in mathematical terms, the formula is:
MR = ΔTR / ΔQ
For example, if a table shows that an increase in quantity from 1 to 2 units leads to an increase in total revenue from $1,200 to $2,200, the marginal revenue of the second unit (MR) would be calculated as:
MR = ($2,200 - $1,200) / (2 - 1) = $1,000
Marginal revenue helps firms calculate the additional revenue they can earn by selling one more unit. It is particularly important in determining the profit-maximizing quantity which would occur where MR equals marginal cost (MC).