Warm Up
1. Write the definition of revenue
2. What do you think the definition
of marginal revenue is?
3. Why do we talk about costs and
revenues when speaking about
firms?
Definitions
• Total revenue – the price of a good times the
quantity sold
• $15 per book x 1,000 sold = $15,000 total
revenue
• What change is there to the total revenue for
selling one additional book?
• MARGINAL REVENUE 
Consider the Following
• Target sells UNO games for $10
• They currently sell 1,000 a month
• Target’s total revenue on UNO games is $10,000 per
month
• If they sell one more???
• First calculate what the total revenue is on 1,001
($10,010)
• Marginal revenue = $10 (a change in total revenue that
results from selling 1 ADDITIONAL game)
• MR=
Firms have to answer 2 ???
• How much will be produced?
• What price will be charged?
How much will be produced?
• You sell t-shirts
• What 2 pieces of information do you need
before you can decide how many you will
produce?
• You need to know
– Marginal cost
– Marginal revenue
T-shirts
MR
MC
1st
$10
$4
2nd
$10
$6
3rd
$10
$8
4th
$10
$9.99
5th
$10
$11
• If someone asked you what is the right number of
t-shirts for you to produce?
• Your answer would be 4
• You should keep producing t-shirts as long as
marginal revenue (additional revenue from
producing one more) is greater than the marginal
cost (additional cost of producing one more)
– MR is greater than MC – produce
– MC is greater than MR – do not produce
Activity
• Cost of a good is $10, price is $20
• Quantity produced is 1,000
• Determine marginal cost and marginal
revenue if 1,100 units were produced with a
total cost of $12,500
• Would it be profitable to produce this
quantity?
What every firm wants: more profits
Profit and Loss
How many people should we hire?
How much time should you study?
Global Impact: Jobs
Questions
• Fortune 500 Companies
• America’s highest-paid executives
Stossel
Quiz