Question

Explain the relation between Total Revenue and Marginal Revenue.

Hint:

MR is the rate of change of TR. Think of TR as the total distance traveled and MR as the speed at any given moment.

Answer 1

Total Revenue (TR) is the total amount of money a firm receives from selling its output. Marginal Revenue (MR) is the additional revenue gained from selling one more unit. The relationship is as follows:

When TR is increasing, MR is positive.
When TR reaches its maximum point, MR is zero.
When TR starts to decrease, MR becomes negative.
Mathematically, MR is the first derivative of the TR function with respect to quantity (MR = d(TR)/dQ).