Practice Questions
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A company is evaluating whether to increase production of its product. If the marginal cost of producing one additional unit is $20 and the current market price is $50, what impact would this decision have on producer surplus, assuming the company can sell all additional units produced? Use cost-benefit analysis principles to support your conclusion.
Producer surplus is the difference between price and marginal cost. Other options are incorrect because This answer assumes that more units do not cha...
If a factory increases labor input while keeping machinery constant, and the additional output from each new worker begins to decline, how might this affect the marginal cost of production?
When each new worker adds less product than the previous one, the extra cost needed to produce an extra unit goes up. Other options are incorrect beca...
If a consumer is willing to pay $100 for a concert ticket but purchases it for $70, what is the consumer surplus they experience from this transaction?
Consumer surplus is the extra value a buyer gets beyond what they pay. Other options are incorrect because Some think the surplus is the amount the bu...
If a farmer is willing to sell apples for $2 each but the market price is $4, what is the producer surplus per apple sold?
Producer surplus is the extra amount a producer gets above the lowest price he is willing to accept. Other options are incorrect because Some think th...
A bakery produces loaves of bread at a marginal cost of $3 each. If they decide to sell these loaves at a market price of $5, what is the producer surplus per loaf sold?
Producer surplus is the extra money a producer keeps after covering the marginal cost of making a good. Other options are incorrect because Some think...
In marginal analysis, the point at which __________ happens is critical for determining the optimal output level.
When the extra benefit from producing one more unit equals the extra cost, you reach the best output. Other options are incorrect because This idea mi...
If a company continues to produce goods beyond the point where marginal cost exceeds marginal benefit, what is the likely effect on its overall profitability?
When the cost of making one more unit is higher than the money earned from it, the extra cost is not matched by extra income. Other options are incorr...
Arrange the steps of conducting marginal analysis to determine optimal output: A) Compare marginal benefit and marginal cost, B) Identify the level of output, C) Make production decisions based on equality of benefits and costs, D) Assess the impact of changes in output on costs and benefits.
First you look at the extra benefit you get from producing one more unit and compare it to the extra cost you pay. Other options are incorrect because...
A firm is deciding on the optimal level of production. If the firm's marginal cost of producing one more unit exceeds the marginal benefit, what should the firm do?
When the extra cost of making one more unit is higher than the extra benefit it brings, the firm is losing money on that unit. Other options are incor...
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