Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increase production
B
Decrease production
C
Maintain current production level
D
Shut down production
Understanding the Answer
Let's break down why this is correct
Answer
In marginal analysis, a firm looks at the additional benefits and costs of producing one more unit of a product. If the firm discovers that the marginal revenue, which is the money earned from selling that extra unit, is higher than the marginal cost, which is the cost of making that unit, it makes sense for the firm to increase production. This means the firm is making a profit from that additional unit, so producing it is beneficial. For example, if it costs the firm $5 to produce one more toy but selling that toy brings in $10, the firm earns an extra $5. Therefore, the firm should continue to produce more units as long as the marginal revenue remains greater than the marginal cost.
Detailed Explanation
When the extra money made from selling one more unit is more than what it costs to make it, the firm should produce more. Other options are incorrect because Some might think lowering production is better, but that would mean missing out on extra profit; Keeping the same level of production might seem safe, but it ignores the chance to earn more.
Key Concepts
marginal revenue
Topic
Understanding Marginal 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.