Marginal revenue

Marginal revenue (or marginal benefit) is a central concept in microeconomics that describes the additional total revenue generated by increasing product sales by 1 unit.^{[1][2][3][4][5]} To derive the value of marginal revenue, it is required to examine the difference between the aggregate benefits a firm received from the quantity of a good and service produced last period and the current period with one extra unit increase in the rate of production.^[6] Marginal revenue is a fundamental tool for economic decision making within a firm's setting, together with marginal cost to be considered.^[7]

In a perfectly competitive market, the incremental revenue generated by selling an additional unit of a good is equal to the price the firm is able to charge the buyer of the good.^[3][8] This is because a firm in a competitive market will always get the same price for every unit it sells regardless of the number of units the firm sells since the firm's sales can never impact the industry's price.^[1][3] Therefore, in a perfectly competitive market, firms set the price level equal to their marginal revenue ${\displaystyle (MR=P)}$.^[6]

In imperfect competition, a monopoly firm is a large producer in the market and changes in its output levels impact market prices, determining the whole industry's sales. Therefore, a monopoly firm lowers its price on all units sold in order to increase output (quantity) by 1 unit.^[1][3][6] Since a reduction in price leads to a decline in revenue on each good sold by the firm, the marginal revenue generated is always lower than the price level charged ${\displaystyle (MR<P)}$.^[1][3][6] The marginal revenue (the increase in total revenue) is the price the firm gets on the additional unit sold, less the revenue lost by reducing the price on all other units that were sold prior to the decrease in price. Marginal revenue is the concept of a firm sacrificing the opportunity to sell the current output at a certain price, in order to sell a higher quantity at a reduced price.^[6]

Profit maximization occurs at the point where marginal revenue (MR) equals marginal cost (MC). If ${\displaystyle MR>MC}$ then a profit-maximizing firm will increase output to generate more profit, while if ${\displaystyle MR<MC}$ then the firm will decrease output to gain additional profit. Thus the firm will choose the profit-maximizing level of output for which ${\displaystyle MR=MC}$.^[9]

Definition

Marginal revenue is equal to the ratio of the change in revenue for some change in quantity sold to that change in quantity sold. This can be formulated as:^[10]

${\displaystyle MR={\frac {\Delta TR}{\Delta Q}}}$

This can also be represented as a derivative when the change in quantity sold becomes arbitrarily small. Define the revenue function to be^[11]

${\displaystyle R(Q)=P(Q)\cdot Q,}$

where Q is output and P(Q) is the inverse demand function of customers. By the product rule, marginal revenue is then given by

${\displaystyle R'(Q)=P(Q)+P'(Q)\cdot Q,}$

where the prime sign indicates a derivative. For a firm facing perfect competition, price does not change with quantity sold (${\displaystyle P'(Q)=0}$), so marginal revenue is equal to price. For a monopoly, the price decreases with quantity sold (${\displaystyle P'(Q)<0}$), so marginal revenue is less than price for positive ${\displaystyle Q}$ (see Example 1).^[6]

Example 1: If a firm sells 20 units of books (quantity) for $50 each (price), this earns total revenue: P*Q = $50*20 = $1000

Then if the firm increases quantity sold to 21 units of books at $49 each, this earns total revenue: P*Q = $49*21 = $1029

Therefore, using the marginal revenue formula (MR)^[10] = ${\displaystyle {\frac {\Delta TR}{\Delta Q}}=\left({\frac {\$1029-\$1000}{21-20}}\right)=\$29}$

Example 2: If a firm's total revenue function is written as ${\displaystyle R(Q)=P(Q)\cdot Q,}$^[12]

${\displaystyle R(Q)=(Q)\cdot (200-Q)}$

${\displaystyle R(Q)=200Q-Q^{2}}$

Then, by first order derivation, marginal revenue would be expressed as

${\displaystyle MR=R'(Q)=200-2Q}$

Therefore, if Q = 40,

MR = 200 − 2(40) = $120

Marginal revenue curve

The marginal revenue curve is affected by the same factors as the demand curve – changes in income, changes in the prices of complements and substitutes, changes in populations, etc.^[13] These factors can cause the MR curve to shift and rotate.^[14] Marginal revenue curve differs under perfect competition and imperfect competition (monopoly).^[15]

Under perfect competition, there are multiple firms present in the market. Changes in the supply level of a single firm does not have an impact on the total price in the market.^[16] Firms follow the price determined by market equilibrium of supply and demand and are price takers.^[17] The marginal revenue curve is a horizontal line at the market price, implying perfectly elastic demand and is equal to the demand curve.^[18]

Under monopoly, one firm is a sole seller in the market with a differentiated product.^[15] The supply level (output) and price is determined by the monopolist in order to maximise profits, making a monopolist a price maker.^[19] The marginal revenue for a monopolist is the private gain of selling an additional unit of output. The marginal revenue curve is downward sloping and below the demand curve and the additional gain from increasing the quantity sold is lower than the chosen market price.^[20][21] Under monopoly, the price of all units lowers each time a firm increases its output sold, this causes the firm to face a diminishing marginal revenue.^[22]

Relationship between marginal revenue and elasticity

The relationship between marginal revenue and the elasticity of demand by the firm's customers can be derived as follows:^[23][24][25]

${\displaystyle R=P(Q)\cdot Q,}$

Taking the first order derivative of total revenue:

${\displaystyle \left({\frac {dR}{dQ}}\right)=\left({\frac {dQ}{dQ}}\right)\cdot P+\left({\frac {dP}{dQ}}\right)\cdot Q}$

${\displaystyle MR=dR/dQ=P+{\frac {dP}{dQ}}\cdot Q=P+\left({\frac {dP}{dQ}}{\frac {Q}{P}}\right)\cdot P=P\cdot \left(1+{\frac {1}{e}}\right),}$

where R is total revenue, P(Q) is the inverse of the demand function, and e < 0 is the price elasticity of demand written as ${\displaystyle e=\left({\frac {dQ}{dP}}{\frac {P}{Q}}\right)}$.^[24]

Monopolist firm, as a price maker in the market, has the incentives to lower prices to boost quantities sold.^[15] The price effects occur when a firm raises its products' prices and increased revenue on each unit sold. The quantity effect, on the other hand, describes the stage when prices increased and consumers quantity demanded reduce. Firms' pricing decision, therefore, is based on the tradeoff between the two outcomes by considering elasticity.^[26]

When a monopolist firm is facing an Inelastic demand curve (e<1), it implies that a percentage change in quantity is less than the percentage change in price. By increasing quantity sold, the firm is forced to accept a reduction of price for all the current and previous production units,^[21] resulting in a negative marginal revenue (MR). As such, as consumers are less sensitive and responsive to lower prices movement and so the expected product sales boost is highly unlikely and firms lose more profits due to reduction in marginal revenue. A rational firm will have to maintain its current price levels instead or increase the price for profit expansion.^[24][27][28]

Increases in consumer's responsiveness to small changes in prices leads represents an elastic demand curve (e>1), resulting in a positive marginal revenue (MR) under monopoly competition. This signifies that a percentage change in quantity outweighs the percentage change in price. Firms in the imperfect competition market that lower prices by a small portion benefit from a large percentage increase in quantity sold and this generates greater marginal revenue. With that, a rational firm will recognize the value of price effects under an elastic demand function for its products and would avoid increasing prices as the quantity (demand) lost would be amplified due to the elastic demand curve.^[24][27][28]

If the firm is a perfect competitor, where quantity produced and sold has no effect on the market price, then the price elasticity of demand is negative infinity and marginal revenue simply equals the (market-determined) price ${\displaystyle (MR=P)}$.^[24][28]

Therefore, it is essential to be aware of the elasticity of demand. A monopolist prefers to be on the more elastic end of the demand curve in order to gain a positive marginal revenue. This shows that a monopolist reduces output produced up to the point where marginal revenue is positive.^[24][25]

한계 수익 및 마크업 가격

이윤 극대화는 기업이 한계수익이 한계비용과 동일한 곳에서 생산하도록 요구한다. 기업 경영자들은 그들의 한계 수익 기능이나 한계 비용에 관한 완전한 정보를 가지고 있을 것 같지 않다. 그러나 이익 극대화 조건은 "더 쉽게 적용할 수 있는 형태"로 표시할 수 있다.

MR = MC,

MR = P(1 + 1/e),

MC = P(1 + 1/e),

MC = P + P/e,

(^[29]P - MC)/ P = -1/e

마크업은 가격과 한계비용의 차이다. 이 공식은 가격 백분율로 표시하는 것이 수요 탄력성 역의 음수(따라서 절대값)와 같다고 명시한다.^[29] 수요의 탄력성이 낮다는 것은 평형을 극대화하는 이익에서 더 높은 가격 인상을 의미한다.^[28]

(P - MC)/ P = -1/e는 경제학자 아바 레너(Abba Lerner)의 이름을 따서 레너(Lerner) 지수라고 부른다.^[30] Lerner 지수는 시장 지배력의 척도로서 한계 비용을 초과하는 가격을 부과할 수 있는 기업의 능력이다. 지수는 0(수요가 무한 탄력성(완벽한 경쟁 시장)에서 1(수요 탄력성이 -1인 경우)까지 다양하다. 지수 값이 1에 가까울수록 가격과 한계비용의 차이가 커진다. 수요의 탄력성이 떨어질수록 레너 지수는 증가한다.^[30]

또는 다음과 같이 관계를 표현할 수 있다.

P = MC/(1 + 1/e).

따라서 예를 들어 e가 -2이고 MC가 5.00이면 가격은 10달러다.

예: 기업이 10대를 각각 $20에 팔거나 $19에 11대를 팔 수 있다면, 11단위의 한계 수익은 (11 × 19) - (10 × 20) = $9이다.

참고 항목

• 원가곡선
• 이익 극대화

메모들

참조

• 랜드스버그, S 2002 가격 이론 & 적용, 5차 개정. 서남부의
• 퍼로프, J, 2008년 미시경제학: Pearson, 미적분학을 이용한 이론과 응용. ISBN 9780321277947
• Pindyck, R&Rubinfeld, D 2001: 미시경제학 5차 개정. 프렌티스 홀을 호출하십시오. ISBN 0-13-019673-8
• 새뮤얼슨 & 마크스, 2003년 경영경제학 4부. 와일리
• 오설리반, 아서; 셰프린, 스티븐 M. (2003) 경제학: 행동의 원칙. Pearson 프렌티스 홀. ISBN 0-13-063085-3