What is the difference between marginal cost and marginal revenue?
A. Marginal cost is the money earned from selling one more unit of a good. Marginal revenue is the money paid for producing one more unit of a good.
B. Marginal cost is the money paid for producing one more unit of a good. Marginal revenue is the money earned from selling one more unit of a good.
C. Marginal cost is the money a producer might make from one more unit. Marginal revenue is the money a producer actually makes from one more unit.
D. Marginal cost is the money a producer actually makes from one more unit. Marginal revenue is the money a producer might make from one more unit.
Answer (2)
Marginal cost is the expense of producing one additional unit.
Marginal revenue is the income from selling one additional unit.
The correct definition aligns marginal cost with production expenses and marginal revenue with sales income.
Therefore, the correct answer defines marginal cost as the money paid for producing one more unit and marginal revenue as the money earned from selling one more unit. M a r g ina l cos t i s t h e m o n ey p ai d f or p ro d u c in g o n e m ore u ni t o f a g oo d . M a r g ina l re v e n u e i s t h e m o n ey e a r n e d f ro m se ll in g o n e m ore u ni t o f a g oo d .
Explanation
Understanding Marginal Cost and Revenue Marginal cost and marginal revenue are fundamental concepts in economics that help businesses make decisions about production and pricing. Let's break down what each term means.
Defining Marginal Cost Marginal cost is the additional cost incurred by producing one more unit of a good or service. It includes the cost of materials, labor, and any other expenses directly related to the production of that additional unit.
Defining Marginal Revenue Marginal revenue, on the other hand, is the additional revenue gained from selling one more unit of a good or service. It's the income generated from that extra sale.
Identifying the Correct Definition Now, let's evaluate the given options to determine the correct definitions:
Option 1: Marginal cost is the money earned from selling one more unit of a good. Marginal revenue is the money paid for producing one more unit of a good. (Incorrect)
Option 2: Marginal cost is the money paid for producing one more unit of a good. Marginal revenue is the money earned from selling one more unit of a good. (Correct)
Option 3: Marginal cost is the money a producer might make from one more unit. Marginal revenue is the money a producer actually makes from one more unit. (Incorrect)
Option 4: Marginal cost is the money a producer actually makes from one more unit. Marginal revenue is the money a producer might make from one more unit. (Incorrect)
The correct answer is the one that aligns with the definitions we've established.
Final Answer The correct definition is:
Marginal cost is the money paid for producing one more unit of a good. Marginal revenue is the money earned from selling one more unit of a good.
Examples
Imagine you're running a bakery. Marginal cost would be the cost of the ingredients and labor to bake one additional cake. Marginal revenue would be the money you get from selling that one extra cake. By comparing these two, you can decide if it's profitable to bake more cakes.
Marginal cost is the additional expense of producing one more unit of a good, while marginal revenue is the income from selling one more unit. The correct choice is Option B: 'Marginal cost is the money paid for producing one more unit of a good. Marginal revenue is the money earned from selling one more unit of a good.' These definitions are important for effective business decision-making.
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