Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The firm will achieve higher profitability due to increased sales.
B
The firm may experience diminishing returns, leading to less efficient resource use.
C
The firm will optimize its resource allocation without any negative consequences.
D
The firm will likely reduce its total costs significantly.
Understanding the Answer
Let's break down why this is correct
Answer
When a firm decides to increase production even though its marginal costs are rising, it can lead to a decrease in overall efficiency. This happens because the cost of producing each additional unit is becoming higher, which means the firm is not getting as much value from each new unit produced. For example, if a factory normally makes toys for $5 each but starts to spend $7 for each additional toy, the extra toys may not be worth the higher cost. As a result, the firm might end up spending more money than it earns from selling those extra toys, reducing its overall profit and efficiency. Therefore, increasing production under these conditions may not be a smart choice for the firm.
Detailed Explanation
When a firm increases production and costs go up, it can use resources less effectively. Other options are incorrect because It's a common belief that more sales always mean more profit; Some might think that increasing production is always good.
Key Concepts
Optimization in Microeconomics
Marginal Costs
Diminishing Returns
Topic
Optimization in Microeconomics
Difficulty
medium level question
Cognitive Level
understand
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