Difference between revisions of "Calculate Marginal Revenue"
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According to basic economic principles, if a company lowers the price of the products it sells, it will sell a greater number of products. However, it will also make less money for each additional product it sells. This "extra money" — the revenue generated from selling one additional product — is marginal revenue. | According to basic economic principles, if a company lowers the price of the products it sells, it will sell a greater number of products. However, it will also make less money for each additional product it sells. This "extra money" — the revenue generated from selling one additional product — is marginal revenue. | ||
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== Steps == | == Steps == | ||
===Calculating Marginal Revenue=== | ===Calculating Marginal Revenue=== | ||
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#*Kim's has become a major soda player and now shares the market with Linda's and Andy's, two other soda firms. The three firms agree to sell their sodas at the same price, so marginal revenue for each additional soda will remain unchanged regardless of the price level they chose. If Jeff starts a small firm to undercut their inflated price, the three large firms may drop their prices so low that Jeff is forced out of business. The firms accept the reduced marginal revenue temporarily because they can raise the prices again once Jeff's is gone. | #*Kim's has become a major soda player and now shares the market with Linda's and Andy's, two other soda firms. The three firms agree to sell their sodas at the same price, so marginal revenue for each additional soda will remain unchanged regardless of the price level they chose. If Jeff starts a small firm to undercut their inflated price, the three large firms may drop their prices so low that Jeff is forced out of business. The firms accept the reduced marginal revenue temporarily because they can raise the prices again once Jeff's is gone. | ||
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== Related Articles == | == Related Articles == | ||
