Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Marginal cost decreases and producer surplus increases
B
Marginal cost increases and producer surplus decreases
C
Marginal cost remains the same and producer surplus increases
D
Marginal cost increases and producer surplus remains the same
Understanding the Answer
Let's break down why this is correct
Answer
When a company increases production, the marginal cost often changes. Marginal cost is the cost of producing one more unit of a good. Initially, as production increases, the marginal cost might decrease due to efficiencies, but after a certain point, it can start to rise as resources become limited or more expensive. For producers, the surplus, which is the difference between what they are paid and what it costs to produce, can increase if they sell more units at a price higher than the marginal cost. For example, if a factory produces 100 toys at a low cost and then decides to make 110 toys, the additional cost for those extra 10 toys might be higher, but if the selling price remains the same, the producer can benefit from the extra sales.
Detailed Explanation
When production increases, the marginal cost often decreases. Other options are incorrect because This answer suggests that costs go up when making more items; This option says costs stay the same, but that’s not usually true.
Key Concepts
Producer surplus
Topic
Marginal Cost and Benefit Analysis
Difficulty
easy level question
Cognitive Level
understand
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