What is marginal revenue?

Marginal revenue is defined as the additional revenue that a firm gains when it sells one more unit of a good or service. It represents the change in total revenue that occurs when the quantity of output is increased by a small amount, typically one additional unit. This concept is crucial in understanding how firms make production and pricing decisions, as it helps determine whether an increase in output will lead to higher profits or not.

When a company is analyzing its production levels, it looks at marginal revenue to decide whether to expand or reduce output. If the marginal revenue exceeds marginal cost, it indicates that producing one more unit would add to the firm's profit, guiding the decision to increase production.

The other choices focus on broader concepts. The total revenue generated from all units sold refers to the complete income earned from a given number of sales, while average revenue refers to revenue per unit sold, giving insights into pricing strategies. The revenue lost due to decreased production discusses losses rather than the incremental gains from additional sales. These options highlight different aspects of revenue but do not capture the specific definition and significance of marginal revenue.