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.

c. 43,277 units at which MC = \(99 and MB = \)99.

d. 82 units at which MC < MB.

e. 5 units at which MB < MC.

Short Answer

Expert verified
  1. Produce more units
  2. Produce fewer units
  3. Produce the current number of units
  4. Produce more units
  5. Produce fewer units

Step by step solution

01

Analysis of marginal benefit and marginal cost

Marginal benefit and marginal cost are compared to reach the optimal point of production. If the marginal benefit exceeds the marginal cost, the producer tends to increase the number of units produced. If the marginal cost exceeds the marginal benefit, the producer tends to decrease the number of units produced.

02

Explanation for part (a)

At 3,000 units, the value of the marginal cost (MC) is $10, and the value of the marginal benefit (MB) is $13. Here, the value of the MB is greater than the value of the MC. Hence, the producer should produce more units.

03

Explanation for part (b)

At 11 units, the value of the marginal cost (MC) is $4, and the value of the marginal benefit (MB) is $3. Here, the value of the MC is greater than the value of the MB. Thus, the producer should produce fewer units.

04

Explanation for part (c)

At 43,277 units, the value of the marginal cost (MC) is $99, and the value of the marginal benefit (MB) is $99. Here, the value of the MB is equal to the value of the MC. Hence, the producer should produce the current number of units.

05

Explanation for part (d)

At 82 units, the marginal cost (MC) is less than the marginal benefit (MB). As the marginal benefit is greater than the marginal cost, the producer should produce more units.

06

Explanation for part (e)

At 5 units, the marginal benefit (MB) is less than the marginal cost (MC). As the marginal cost is greater than the marginal benefit, the producer should produce fewer units.

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Most popular questions from this chapter

Suppose that you are on a desert island and possess exactly 20 coconuts. Your neighbor, Friday, is a fisherman, and he is willing to trade 2 fish for every 1 coconut that you are willing to give him. Another neighbor, Kwame, is also a fisherman, and he is willing to trade 3 fish for every coconut.

  1. On a single figure, draw budget lines for trading with Friday and for trading with Kwame. (Put coconuts on the vertical axis.)
  2. What is the slope of the budget line from trading with Friday?
  3. What is the slope of the budget line from trading with Kwame?
  4. Which budget line features a larger set of attainable combinations of coconuts and fish?
  5. If you are going to trade coconuts for fish, would you rather trade with Friday or Kwame? Why?

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a. The quality of education increases.

b. The number of unemployed workers increases.

c. A new technique improves the efficiency of extracting copper from ore.

d. A devastating earthquake destroys numerous production facilities.

Suppose that based on a nation's production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the one additional industrial robot it desires, but it can get the robot from another country in exchange for 9,000 pizzas. Relate this information to the following statement. "Through international specialization and trade, a nation can reduce its opportunity cost of obtaining goods and thus move outside its production possibilities curve."

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