Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Higher average product leads to lower marginal costs, making production more beneficial
B
Average product is irrelevant to cost-benefit analysis
C
A lower average product always indicates a loss
D
Increasing average product always increases total costs
Understanding the Answer
Let's break down why this is correct
Answer
In short-run production decisions, the average product helps businesses understand how efficiently they are using their resources, like labor. The average product is the total output produced divided by the number of inputs used, such as workers. When a company sees that adding more workers increases the average product, it indicates that they are benefiting from more output without a proportional increase in costs. For example, if a bakery hires one more baker and the total bread produced increases significantly, this shows that the average product is rising, making it worthwhile to continue hiring. Therefore, businesses use this information to decide how many workers to employ and at what point the costs of hiring additional workers might outweigh the benefits of increased production.
Detailed Explanation
When the average product is high, it means each unit of input is producing a lot. Other options are incorrect because Some might think average product doesn't matter, but it actually helps us see how efficiently we are using resources; It's a common mistake to think a lower average product means a loss.
Key Concepts
Average product
Cost-benefit analysis
Topic
Short-Run Production Decisions
Difficulty
medium level question
Cognitive Level
understand
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