Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Marginal cost is the cost of producing one more unit of a good or service.
B
Marginal costs decrease as production levels increase due to economies of scale.
C
Understanding marginal costs helps firms decide the optimal level of production.
D
Marginal costs are irrelevant when setting prices for goods in a competitive market.
E
A firm should continue producing as long as the marginal cost is less than or equal to the marginal revenue.
Understanding the Answer
Let's break down why this is correct
Answer
Marginal cost is the extra cost of producing one more unit of a product. When businesses decide how much to produce, they look at how much it will cost to make that additional item compared to how much money they will make from selling it. For example, if a bakery can make one more cake for an additional $10, but sells it for $15, the marginal cost is lower than the marginal revenue, making it a good decision to produce that extra cake. Understanding marginal costs helps companies maximize profits by ensuring they only produce items when the revenue exceeds the cost. Therefore, businesses aim to keep marginal costs low while increasing production when it is profitable to do so.
Detailed Explanation
Other options are incorrect because Marginal cost means the cost of making one extra item; Some people think that costs always go down when you make more items.
Key Concepts
Marginal Costs
Production Decisions
Pricing Strategies
Topic
Calculating Marginal Costs
Difficulty
easy level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.