Table of contents
- What Is Marginal Revenue?
- Why Marginal Revenue Is Important
- Marginal Revenue vs Average Revenue
- Real-Life Indian Business Examples
- How Marginal Revenue Influences Pricing Decisions
- Types of Market Structures & Their Impact on MR
- Marginal Revenue Curve Explained
- Key Takeaways
- Conclusion
- Frequently Asked Questions (FAQs)
In the world of business, understanding revenue is crucial, but to truly master pricing and profitability, businesses must go a step further and understand marginal revenue. Whether you’re a startup founder, an MBA student, or a business analyst, knowing what marginal revenue is can help you make smarter decisions and maximise profits.
This article will guide you step-by-step through the concept of marginal revenue, its formula, practical uses in Indian businesses, and its importance in pricing strategies.
What Is Marginal Revenue?
Marginal Revenue (MR) is the additional revenue a business earns when it sells one more unit of a product or service.
Formula:
- Marginal Revenue = Change in Total Revenue / Change in Quantity Sold
Example:
If selling 100 units brings in ₹10,000, and selling 101 units brings in ₹10,150, then:
Marginal Revenue = ₹10,150 – ₹10,000 / 101 – 100 = ₹150
Why Marginal Revenue Is Important
Understanding marginal revenue helps businesses:
Maximize Profits
- Firms produce until Marginal Revenue = Marginal Cost (MR = MC).
- Beyond this point, producing more reduces profit.
Pricing Strategy
- Helps set prices to maximise total revenue, especially for services like telecom, ride-sharing, and streaming platforms in India.
Production Planning
- Guides decisions on scaling operations.
- Prevents overproduction, which leads to higher costs.
Marginal Revenue vs Average Revenue
| Aspect | Marginal Revenue (MR) | Average Revenue (AR) |
| Definition | Revenue from selling one extra unit | Total revenue divided by total units sold |
| Formula | ΔTR / ΔQ | TR / Q |
| Role in pricing | Key for pricing optimisation | Useful for analysing overall performance |
| Business use | Short-term pricing and production | Long-term performance evaluation |
Real-Life Indian Business Examples
Zomato & Swiggy
- Adjust delivery charges to test the marginal impact on revenue.
Flipkart
- Offers marginal discounts during sales like Big Billion Days to analyse revenue per extra item sold.
ALSO READ – Flipkart Affiliate Marketing: The Ultimate Guide to Earn Money in 2025
Reliance Jio
- Used MR to fine-tune mobile recharge plans, increasing ARPU (Average Revenue per User) while monitoring MR.
How Marginal Revenue Influences Pricing Decisions
1. Helps Identify Optimal Price Points
- Businesses calculate MR at various price levels to find the sweet spot for maximum profitability.
2. Supports Dynamic Pricing
- Used in e-commerce and airline industries, where pricing changes with demand.
3. Aids Price Discrimination
- Example: Indian Railways offers multiple fare classes to maximise revenue from different customer segments.
ALSO READ – Top 10 Pricing Strategy in Marketing Tips for Indian Businesses (2025)
Types of Market Structures & Their Impact on MR
| Market Type | Marginal Revenue Behaviour |
| Perfect Competition | MR = Price |
| Monopoly | MR < Price due to price drop needed for more sales |
| Oligopoly | MR is influenced by competitors’ pricing |
| Monopolistic Competition | MR varies; brand perception impacts additional revenue |
Marginal Revenue Curve Explained
- The marginal revenue curve shows how MR decreases as more units are sold.
- Typically downward sloping in monopolies and monopolistic competition.
- Used by firms to identify the MR = MC point, i.e., profit-maximising output level.
Key Takeaways
- Marginal revenue measures revenue growth per additional unit sold.
- It plays a critical role in pricing, production decisions, and profit maximisation.
- In perfect competition, marginal revenue = price.
- In monopolistic markets, marginal revenue < price due to price drops needed to sell more.
Indian examples: Flipkart’s discount pricing or Ola’s ride fare optimisation involve MR analysis.
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Conclusion
So, what is marginal revenue? It’s not just a formula; it’s a powerful business decision-making tool. From setting the right price to scaling production efficiently, marginal revenue helps Indian businesses stay competitive and profitable. If you want to grow smart, keep marginal revenue in your strategic toolbox.
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Frequently Asked Questions (FAQs)
It’s the extra income a company earns by selling one more unit.
By dividing the change in total revenue by the change in quantity sold.
It helps businesses set prices, manage production, and maximise profits.
The firm is at its maximum total revenue—selling more won’t increase revenue.
Yes, in most real markets, especially under monopoly or monopolistic competition.
Yes. It means selling more units reduces total revenue, indicating overproduction.
In perfect competition, MR = price. In a monopoly, MR is less than the price.
Profit is maximized when MR = MC.
Yes, from Flipkart to Zomato, many use it for pricing and product decisions.
Absolutely. It’s used widely in telecom, education, SaaS, and more.
