Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Producer surplus will increase by $30 for each additional unit produced.
B
Producer surplus will remain unchanged regardless of production levels.
C
Producer surplus will decrease due to higher costs associated with production.
D
Producer surplus will increase, but only if the marginal cost is below $10.
Understanding the Answer
Let's break down why this is correct
Answer
Because the price of $50 is higher than the marginal cost of $20, each extra unit sold gives the firm a profit of $30, so producer surplus rises by that amount per unit. In cost‑benefit terms the benefit (price) exceeds the cost, making the decision worthwhile. The company can therefore increase production and capture additional surplus equal to the price‑minus‑cost difference. For example, if they make and sell ten more units, the surplus grows by 10 × $30 = $300. This simple marginal analysis shows that the firm gains by expanding output.
Detailed Explanation
Producer surplus is the difference between price and marginal cost. Other options are incorrect because This answer assumes that more units do not change surplus; It is true that higher costs can lower surplus, but only if costs exceed price.
Key Concepts
Cost-Benefit Analysis
Producer Surplus
Marginal Cost
Topic
Marginal Analysis
Difficulty
hard level question
Cognitive Level
understand
Practice Similar Questions
Test your understanding with related questions
1
Question 1A manufacturing company produces a gadget with a fixed cost of $15,000. The variable cost per unit is $50, and each gadget sells for $100. If the company decides to increase production by 100 units, what will be the impact on their marginal cost, and what is the new breakeven point in units?
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2
Question 2If a production company discovers that the marginal cost of producing an additional unit is lower than the selling price, what does this indicate about their current production level?
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3
Question 3If a company continues to produce goods beyond the point where marginal cost exceeds marginal benefit, what is the likely effect on its overall profitability?
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4
Question 4A 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?
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