Which of the following best describes marginal revenue in the context of marginal analysis?

• A. It is the average revenue earned per unit sold.
• B. It is the difference between total cost and total revenue.
• C. It is the total revenue earned from selling all units of a good.
• D. It is the additional income a producer earns from selling one more unit of a good.

Answer: (D)

Verified step by step guidance

1. Understand the concept of marginal revenue: Marginal revenue (MR) is the additional revenue that a firm earns by selling one more unit of a good or service.
2. Recall the formula for marginal revenue: \(MR = \frac{\Delta TR}{\Delta Q}\), where \(\Delta TR\) is the change in total revenue and \(\Delta Q\) is the change in quantity sold (usually one unit).
3. Compare marginal revenue to average revenue: Average revenue (AR) is total revenue divided by quantity sold, \(AR = \frac{TR}{Q}\), which differs from marginal revenue because AR is an average measure, not an incremental one.
4. Eliminate incorrect options by understanding definitions: For example, total revenue is the overall income from all units sold, not the additional revenue from one more unit; the difference between total cost and total revenue relates to profit, not marginal revenue.
5. Conclude that marginal revenue specifically refers to the additional income from selling one more unit, which aligns with the correct answer choice.