ACCA Performance Management (F5) Certification Practice Exam

Marginal revenue can be defined as what?

1. The total revenue from all sales

2. The additional revenue from selling one extra unit

3. The average revenue per unit sold

4. The fixed revenue over time

The correct answer is: The additional revenue from selling one extra unit

Marginal revenue refers to the additional revenue generated from selling one more unit of a good or service. This concept is critical for businesses as it helps in decision-making related to pricing and output levels. When a company understands its marginal revenue, it can determine how many units to sell to maximize profit. In a competitive market, marginal revenue helps businesses decide whether to increase or decrease production based on the revenue each additional unit will bring. If the marginal revenue exceeds the marginal cost of production, it is beneficial to increase production. This relationship is vital for understanding how businesses manage their resources effectively to enhance profitability. By distinguishing marginal revenue from other concepts, one can see that total revenue is an aggregate figure, average revenue divides the total revenue by the number of units sold, and fixed revenue does not change with the level of output. Therefore, the definition of marginal revenue as the additional income from selling one extra unit is pivotal for effective financial analysis and strategic planning within a company.