How to Calculate the Marginal Revenue Curve
In microeconomics, marginal revenue measures the change in total revenue with respect to a change in total units sold. The nature of the marginal revenue curve gives some indication of your business' pricing strategies. If the marginal revenue curve is anything but horizontal, then your firm exhibits some degree of market power. For larger data sets, a spreadsheet program will assist you in your derivation of a marginal revenue curve.
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Instructions
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Create a table or spreadsheet. In the first column, list the quantity of goods sold. Quantity should range from one and continue until the total quantity of units sold is listed. For example, if your company has sold 20 units, you should have a column that lists quantities one to 20.
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In the second column, list the price of each unit at the respective quantity sold. For most small businesses, price does not change with respect to quantity. With larger, more monopolistic businesses, however, price may fall with an increasing amount of units sold.
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Multiply the quantity of units sold by its respective price, and list each result in a third column. This third column represents total revenue.
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Create a fourth column, called marginal revenue. The marginal revenue for the first item sold should be the same as its total revenue. For the next unit sold, however, marginal revenue should be the difference between the total revenue for the second unit minus the total revenue for the first unit. Similarly, the marginal revenue for the third unit is the difference between the total revenue for the third unit minus the total revenue for the second unit. Continue this calculation for the rest of the marginal revenue column.
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Graph marginal revenue. Quantity sold should be labeled on the horizontal axis while marginal revenue is labeled on the vertical axis. Plot the coordinates for marginal revenue for all of your data in order to derive the marginal revenue curve. If your prices do not change with quantity sold, then your curve is simply a straight horizontal line. If prices do change with quantity, however, your marginal revenue curve will be a downward-sloping curve.
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