Course Hero Logo

Perfect Competition

Marginal Revenue

Marginal revenue is the amount of additional revenue that a company earns from selling one additional unit of its product.

Revenue is the amount of income earned by a company in payment for goods or services provided by that company. Marginal revenue represents the additional revenue earned by a company from selling one unit of its product. In perfect competition, in which market prices have reached an equilibrium point and stabilized there, the marginal revenue earned for an additional unit is equal to the price of that unit. Perfectly competitive firms have no control over price, so they will sell all units at the market price. Then, because perfectly competitive firms sell at the market price only, their marginal revenue will always be equal to that price.

For example, if a producer sells wheat, every bushel sells for market price, $4. If the producer sells one bushel, revenue is $4. If it sells two bushels, revenue is $8. Marginal revenue for every bushel is simply $4, because each bushel sells for the market price of $4.