If it costs View Your World, a high- end window manufacturer, $25 per window to install a higher quality glass in its windows and consumers will pay an additional $30 per window for the improvement, which of the following is true?
A)View Your World should not install the higher quality glass because the marginal revenue from the quality enhancement exceeds the marginal cost.
B)View Your World should not install the higher quality glass because the marginal revenue from the quality enhancement is less than the marginal cost.
C)View Your World should install the higher quality glass because the marginal revenue from the quality enhancement is less than the marginal cost.
D)View Your World should install the higher quality glass because the marginal revenue from the quality enhancement exceeds the marginal cost.

Question

Quizplus · Accepted Answer

To determine whether View Your World should install the higher quality glass in its windows, we need to compare the marginal revenue of the quality enhancement with its marginal cost.

Marginal revenue is the additional revenue generated by producing one more unit of the product, in this case, one more window with high-end glass.

Here, consumers are willing to pay an additional $30 per window for the improvement. Therefore, the marginal revenue from the quality enhancement is $30.

Marginal cost is the additional cost incurred by producing one more unit of the product, in this case, one more window with high-end glass.

Here, it costs View Your World $25 per window to install the higher quality glass. Therefore, the marginal cost of the quality enhancement is $25.

Since the marginal revenue of the quality enhancement exceeds its marginal cost ($30 > $25), View Your World should install the higher quality glass in its windows. This would result in a net gain of $5 per window ($30 - $25).

If It Costs View Your World, a High- End Window