Page 105 - DECO405_MANAGERIAL_ECONOMICS

Managerial Economics

Notes 6.6.3 Marginal Revenue (MR)

Marginal revenue is the change in total revenue resulting from a change in the quantity of
output sold. Marginal revenue indicates how much extra revenue a firm receives for selling an
extra unit of output. It is found by dividing the change in total revenue by the change in the
quantity of output. Marginal revenue is the slope of the total revenue curve and is one of two
revenue concepts derived from total revenue. The other is average revenue. To maximize profit,
a firm equates marginal revenue and marginal cost.
MR = Change in TR/Change in Quantity
Figure 6.7 depicts a MR curve under perfect market.

Figure 6.7: MR Curve

Task If price of a unit of good X is 35 and total quantity sold is 230. Find the
total revenue, average revenue and the marginal revenue? Can all the three values be
found with the given data?

Case Study Cotton Board over Estimated Production

he Southern India Mills' Association (SIMA) said the Cotton Advisory Board (CAB's)
has over estimated the production and under estimated the consumption. According
Tto industry experts any further export of cotton would surpass the quantity decided
by Group of Ministers by two lakh bales.
J Thulasidharan, chairman, SIMA said that CAB, at its first meeting held on January 6, 2011
has estimated the cotton production as 32.9 million bales and consumption as 27.5 million
bales (including 2 million bales of non-mill consumption), retained the exportable surplus
as 5.5 million bales and thus reducing the closing stock to 4.45 million bales as against the
Group of Ministers (GoM) promised quantity of 5 million bales.

Contd...

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