📚 Learning Guide
Marginal Analysis in Economics
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In marginal analysis, it is correct to say that if the marginal cost of producing an additional unit exceeds the marginal benefit, the decision to produce that unit should still be made if there are fixed costs involved.

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Understanding the Answer

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Answer

In marginal analysis, we look at the additional costs and benefits of producing one more unit of a product. If the marginal cost—the cost of making one more unit—is higher than the marginal benefit, which is the extra value or satisfaction gained from that unit, it usually means that producing that unit is not a good idea. Fixed costs, like rent or salaries, do not change based on how much you produce, so they shouldn't affect the decision about whether to make one more unit. For example, if a factory already pays $1,000 in rent (a fixed cost) but finds that making one more toy costs $10 while selling it only brings in $8, it would be better not to make that extra toy, even though the rent is still the same. In this case, focusing on the additional costs and benefits helps make the best decision for production.

Detailed Explanation

If the cost of making one more item is higher than the benefit, it's not a good choice. Other options are incorrect because Some might think fixed costs mean you should keep producing.

Key Concepts

Marginal Analysis
Marginal Cost and Marginal Benefit
Fixed Costs
Topic

Marginal Analysis in Economics

Difficulty

medium level question

Cognitive Level

understand

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