Marginal revenue is less than price because the price must be reduced
on all units in order to sell an additional unit. Our example shows that
every time the firm lowers its price by $1, its sales increase by 10 units. At
a price of $6, the firm sells 40 units for a total revenue of $240. If it lowers
its price to $5 on all units, total sales rise to 50 units and total revenue
rises to $250. The shaded rectangle ① shows the $50 gain in revenue
associated with the 10 extra units sold at $5 each. The shaded rectangle ②
shows the $40 loss in revenue associated with reducing the price by $1 on
the original 40 units. Thus, the firm’s marginal revenue when it reduces
its price from $6 to $5 is the change in total revenue
divided by the change in quantity
Now look at the figure. It plots the demand curve described by the price
and quantity values shown in the first two columns of the table. It also
plots the marginal revenue curve and locates the specific points on it that
($ 250 −$ 240 =
( 50 − 40 = 10 ).MR=$ 10 / 10 =$