Marginal Revenue

In microeconomics, marginal revenue (R') is the additional revenue that will be generated by increasing product sales by 1 unit. It can also be described as the unit revenue the last item sold has generated for the firm. In a perfectly competitive market, the additional revenue generated by selling an additional unit of a good is equal to price the firm is able to charge the buyer of the good. 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. However, a monopoly determines the entire industry's sales. As a result, it will have to lower the price of all units sold to increase sales by 1 unit. Therefore the Marginal Revenue generated is always less (lower) than the price the firm is able to charge for the unit sold since each reduction in price causes unit revenue to decline on every good the firm sells. 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.