The total is earned from sales of products, and these products can be from farm or firm. The consumer demand arrived at by the management further helps in the planning of production schedules.īy understanding these three key concepts, the manufacturer will be better placed in the market because there will be no product shortage resulting from customer demand misjudgment. In the management scenario, marginal revenue helps in analyzing consumer demands, which in turn helps in setting up prices for various products. This is the point we conclude that the diminishing returns take effect.ĭespite being a microeconomics concept, it still incorporates some managerial accounting and financial applications. In other words, every time a producer increases one unit of input holding other factors constant, the resulting marginal gain will be increased up to a certain point.Īfter that, the additional output gained by another one unit increase of the input variable will eventually be smaller than the additional output gained by the previous increase in the input variable. Marginal revenue follows the law of diminishing returns, which states that holding other factors constant, if a production process, as one factor of production (input) is varied, there will be a point at which the marginal per unit output will start to decrease. It is a financial ratio that is used to compute the overall change in income obtained from the sales of one additional product or unit. Marginal revenue refers to the increase in revenue realized from the sale of an additional one unit of output.
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