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.

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

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

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.

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.

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.

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.

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.

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.