Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
If the marginal cost is less than the marginal benefit, production should increase.
B
If the marginal cost equals the average cost, production should cease.
C
Marginal cost has no impact on production decisions.
D
If marginal cost is greater than total revenue, production should increase.
Understanding the Answer
Let's break down why this is correct
Answer
In marginal analysis, marginal cost refers to the additional cost of producing one more unit of a good. When deciding whether to produce that extra unit, a producer compares the marginal cost to the marginal benefit, which is the additional revenue gained from selling it. If the marginal benefit is greater than the marginal cost, it makes sense to produce the extra unit, as it will increase overall profit. For example, if a company finds that making one more toy costs $5 but it can sell it for $10, the profit from that additional toy is worth the cost. Therefore, understanding marginal cost helps producers make informed decisions to maximize their profits while ensuring they are not overspending.
Detailed Explanation
When the cost of making one more item is less than what you gain from selling it, it's smart to produce more. Other options are incorrect because Some might think that if costs match average costs, it's time to stop making things; It's a common mistake to think that costs don't matter in production choices.
Key Concepts
marginal cost
Topic
Marginal Analysis and Social Optimality
Difficulty
easy level question
Cognitive Level
understand
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