Relationship Between Marginal Cost and Marginal Revenue

[mstakh.i.mo.mi]

Once you calculate the marginal cost, you will know the cost of producing one additional unit. This cost can be compared to marginal revenue to identify the profitability of the business. However, how exactly is marginal cost related to marginal revenue? The latter takes into account the change in revenue when one additional unit of a product is sold.

Calculating marginal revenue is easy. It can be done with this simple formula –

Marginal Revenue = The change in Total Revenue/ Change in Total Output Quantity

When the marginal cost of production is more than the marginal revenue, it latvia phone number list signifies that the company should decrease its quantity supplied until the marginal revenue equals the marginal cost of production. When the company is producing in excess, the cost of production also increases, and thus, it should decrease its output to lower the manufacturing expense.

In contrast, when the marginal cost is less than the marginal revenue, it indicates that the company should increase its output until the profit is maximised. In this scenario, the firm is not producing enough goods and thus should increase its production.