Question

For each of the following situations involving marginal cost (MC) and marginal benefit (MB), indicate whether it would be best to produce more, fewer, or the current number of units.

a. 3,000 units at which MC = $10 and MB = $13:
b. 11 units at which MC = $4 and MB = $3:

Answer 1

A) More

B) Less

Step-by-step explanation:

According to economic theory, a company maximizes its profit at the point of marginal cost = marginal benefit. That means, the cost of making the last unit matches the wealth generated by that unit.

The idea behind is that units will get diminished returns and make the cost increase over time until is no longer viable to increase hte production and sale of the good.

Thus, a company has exhaused their profit when the cost matches the contribution generated. Below this point costs is lower and should increase production. Above, cost are greater and should decrease production-