Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Marginal cost of producing the additional unit
B
Total fixed costs already incurred
C
Average cost of all units produced
D
Historical costs of production
Understanding the Answer
Let's break down why this is correct
Answer
When a company thinks about producing one more unit of its product, it should primarily consider the marginal cost. Marginal cost is the extra cost incurred to produce that additional unit. This includes any additional materials, labor, and overhead needed for that one unit. For example, if producing one more toy costs the company an extra $5 for materials and labor, then they need to compare this $5 cost to how much they can sell the toy for. If they can sell it for more than $5, it would be beneficial to produce that extra toy.
Detailed Explanation
The marginal cost is the extra cost of making one more item. Other options are incorrect because Some might think past costs matter, but they don't change with new production; The average cost looks at all items made, not just the next one.
Key Concepts
Marginal Costs
Production Decisions
Cost Analysis
Topic
Understanding Marginal Costs
Difficulty
easy level question
Cognitive Level
understand
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