Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It helps in maximizing total profit by considering the additional cost of producing one more unit.
B
It ensures that all costs are fixed.
C
It discourages any form of production increase.
D
It has no impact on decision-making.
Understanding the Answer
Let's break down why this is correct
Answer
Understanding marginal cost is important for a company because it helps them decide how much more of a product to produce. Marginal cost is the extra cost of making one more unit of a product. If the price they can sell that extra unit for is greater than the marginal cost, it makes sense to produce it, as it will increase their profit. For example, if a toy company finds that making one more toy costs $5, but they can sell it for $10, they should produce that toy since they gain $5. By analyzing these costs, companies can make smarter production choices that maximize their profits.
Detailed Explanation
Knowing the extra cost of making one more item helps a company decide if it's worth it. Other options are incorrect because Some might think that understanding marginal cost means all costs stay the same; This answer suggests that knowing marginal cost stops production.
Key Concepts
Decision-making
Topic
Marginal Cost and Benefit Analysis
Difficulty
easy level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.