How is marginal revenue defined?

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Marginal revenue is specifically defined as the change in total revenue resulting from the sale of one additional unit of a good or service. This concept is fundamental in microeconomics as it helps businesses determine the optimal level of production and pricing strategies. When a company understands its marginal revenue, it can assess whether producing and selling additional units will contribute positively to its overall profitability.

In practice, if a firm sells a certain number of units and then sells one more, the increase in total revenue calculated from that additional sale is the marginal revenue. This measure is particularly crucial for firms aiming to maximize profits since they will continue producing as long as the marginal revenue from selling an additional unit exceeds the marginal cost of producing that unit.

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