Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Produce the additional unit
B
Not produce the additional unit
C
Only produce if marginal cost is lower than average cost
D
Calculate total cost before making a decision
Understanding the Answer
Let's break down why this is correct
Answer
When a firm considers producing one more unit of a product, it looks at the costs and benefits of that decision. In this case, the marginal cost of producing one more unit of product A is $50, while the marginal benefit from selling that unit is $70. Since the benefit ($70) is greater than the cost ($50), it makes sense for the firm to produce that additional unit. This decision will increase the firm's overall profit because it gains more from selling the unit than it spends to make it. For example, if the firm produces and sells that extra unit, it will earn an additional $20 in profit, which is a good outcome for the business.
Detailed Explanation
The firm should produce the extra unit. Other options are incorrect because Some might think not to produce if costs are high; This option confuses marginal cost with average cost.
Key Concepts
Marginal Analysis in Economics
Marginal Cost and Marginal Benefit
Resource Allocation
Topic
Marginal Analysis in Economics
Difficulty
medium level question
Cognitive Level
understand
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