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25 June, 04:15

If the marginal benefit of a good is less than its marginal cost, then the nation should:

A. Produce more of that good

B. Maintain the current level of production of that good

C. Reduce the marginal benefit of that good

D. Reduce the production of that good

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Answers (2)
  1. 25 June, 06:44
    0
    Answer: Option "D". The nation should reduce the production of that good

    Explanation:

    Marginal benefit refers to that extra or further satisfaction or utility that a customer obtains when the extra unit of service or goods is bought or paid for. Normally, it has to do with that extra unit of goods or service bought for consumption after the acquisition and consumption of the first unit.

    The marginal cost of production on the other hand refers to the difference in the overall cost of producing a product or rendering a service which is a direct consequence of producing an extra unit of the product.

    Now comparing the both directly; marginal benefit is the additional satisfaction it will give the consumer that purchases extra unit of the product while marginal cost is the change in total production cost after producing an extra unit. Therefore, if the marginal benefit of a product is lower than its marginal cost, it simply means that the additional satisfaction it offers to consumers after the purchase of extra unit of the product is lower than the cost of producing one extra unit of that product. In this case, economists always advice producers to reduce the production of such commodities.
  2. 25 June, 07:13
    0
    D. Reduce the production of that good.

    Explanation:

    Marginal benefit of a good is the added satisfaction it will give a consumer when an extra unit is consumed. In economics the consumer wants to maximise satisfaction and reduce cost.

    The law of diminishing returns states the the marginal satisfaction gained from extra units produced reduces with increase in units produced.

    So in this scenario marginal benefit is less than marginal cost so the law of diminishing returns has set in. To remedy this production needs to be reduced to a level where the marginal benefit will be more than the marginal cost.
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