Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
If the marginal benefit exceeds the marginal cost
B
If the total cost is lower than the average cost
C
If the marginal cost is zero
D
If the total benefits are positive
Understanding the Answer
Let's break down why this is correct
Answer
A firm should decide to produce one more unit of a good if the benefit it receives from selling that unit is greater than the cost of making it. This is known as marginal benefit and marginal cost analysis. For example, if producing one more toy costs the company $5 but they can sell it for $10, the benefit of $10 outweighs the cost of $5. In this case, the firm would make a profit of $5 for that extra toy, which makes it a good decision to proceed with production. On the other hand, if the cost were higher than the benefit, it would not be wise to produce that additional unit.
Detailed Explanation
A firm should make one more unit if the extra benefit is greater than the extra cost. Other options are incorrect because Some might think lower total costs mean it's a good idea to produce more; People might believe that if the cost is zero, it's always good to produce more.
Key Concepts
Marginal Cost
Marginal Benefit
Resource Allocation
Topic
Marginal Cost and Benefit Analysis
Difficulty
medium level question
Cognitive Level
understand
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