Revenue maximisation

Revenue maximisation is a theoretical objective of a firm which attempts to sell at a price which achieves the greatest sales revenue. This would occur at the point where the extra revenue from selling the last marginal unit (i.e. the marginal revenue, MR, equals zero). If marginal revenue is positive, an extra unit sold must add to total revenue and revenue maximisation will not have been reached. Only when marginal revenue is zero will total revenue have been maximised.

Stopping short of this quantity means that an opportunity for more revenue has been lost, whereas increasing sales beyond this quantity means that MR becomes negative and TR falls. This can be seen in the following graph, with revenue maximisation at output Q, and at point A on the AR curve.

Revenue maximisation graph