Luna Gas produces 20 million Btu (British thermal unit) of natural gas a day, at marginal cost of $2 per million Btu. The market price is $3.50 per million Btu. Explain how the company can increase its profit.

Question

Quizplus · Accepted Answer

Since the market price ($3.50 per million Btu) is higher than the marginal cost ($2 per million Btu), increasing production would allow Luna Gas to sell more units at a price that exceeds the cost of producing each additional unit, thereby increasing profit.

Luna Gas Produces 20 Million Btu (British Thermal Unit) of Natural