Answer to Question #184741 in Economics for Hrunali

Question

Explain marginal revenue is less than average revenue

Answer 1

Margin. Economists call it marginal income. It shows how much money the company received after selling a product or service. For the sake of simplicity, in this article, we will refer to the margin as margin income. It is calculated in rubles.

Margin = Revenue - Variable Cost

Revenue is the amount by which the company shipped the goods or provided the service to the client.

Variable expenses - all expenses that are directly related to revenue. They depend on the volume of this revenue: the more expenses, the more revenue.

Most often, variable costs include the purchase price, the percentage of the seller from the proceeds, the cost of packaging, the cost of delivery. But there may be other options. It all depends on the structure and characteristics of the business.

Marginality. This is the ratio of margin to revenue. It shows how effectively a company is selling a product or service.

The average income does not take into account a number of factors affecting the marginal income, that is, it will be higher.