The increase in revenue that comes from selling one more unit of output is known as marginal revenue (MR). While marginal revenue can remain constant over a specific amount of output, it will eventually slow as the output level increases due to the law of diminishing returns. Perfectly competitive enterprises produce until marginal revenue equals marginal cost, according to economic theory.
Any additional advantages derived from the additional unit of activity are minor. When marginal revenue exceeds marginal cost, a profit is generated from the sale of new items. When production and sales are maintained until marginal revenue equals marginal cost, the company achieves the best outcomes. After then, the cost of creating an extra item will outweigh the revenue. When marginal income goes below marginal cost, businesses usually follow the cost-benefit principle and stop producing because there are no more benefits to be gained from continuing to produce.
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