Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The firm can increase output while keeping prices constant
B
The firm must raise prices to cover the new costs
C
The firm will decrease output due to higher fixed costs
D
The firm will become a price maker in the market
Understanding the Answer
Let's break down why this is correct
Answer
When Joyce's firm uses a new technology that lowers the marginal cost of producing peaches, it can produce each additional peach for less money. This change is important because it encourages the firm to produce more peaches since they can make a profit on each one at a lower cost. For example, if it used to cost $2 to produce one peach and now it only costs $1, the firm might decide to increase its production because it can sell more peaches without losing money. Therefore, this technological advancement would likely lead to an increase in production levels, as the firm can now operate more efficiently and take advantage of the lower costs. Overall, reducing costs helps the firm maximize its profits while meeting consumer demand.
Detailed Explanation
When the cost to make each peach goes down, the firm can make more peaches without raising prices. Other options are incorrect because Some might think that new costs mean prices must go up; It's a common mistake to think higher costs lead to less production.
Key Concepts
Marginal Cost Reduction
Production Decisions
Variable Costs
Topic
Cost Changes and Production Levels
Difficulty
easy level question
Cognitive Level
understand
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