The marginal revenue formula is the sale price of an additional unit produced less than the production costs. Economic theory states that firms will continue to increase their output in a perfectly competitive economy until marginal revenue equals marginal cost. However, since the marginal revenue equation is subject to the law of diminishing returns, it will eventually decline with increases in output level. The financial ratio calculation will remain the same regardless of the output level. It is essential to know that the marginal cost can vary from product to product in real life and may even change at different production levels for the same product. Marginal revenue should be more than the marginal cost for the company’s additional production to make sense. At this point, additional production has no benefits as there is no revenue to be made. At the break-even of marginal cost and revenue, it’s time to stop selling. However, this is not the conventional break-even. Further production of goods reaches break-even when marginal revenue equals marginal cost. Marginal revenue is closely linked with another figure, which is the marginal cost (MC). Marginal Revenue (MR) is the income earned from each new unit sold.
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