Thomas Edison once complained that he was not making a profit selling light bulbs because his plants were operating 25 percent below capacity.He estimated that he could increase output 25 percent with a 2 percent increase in the cost of production.He sold the 25 percent on the foreign market at a price below what he called the "cost of production." We can deduce that Edison really meant
A)Marginal cost was below average cost but less than marginal revenue.
B)Average cost exceeded variable cost, which exceeded marginal revenue.
C)Variable cost exceeded fixed cost but was less than marginal revenue.
D)Marginal cost was above average cost but greater than marginal revenue.

Question

Quizplus · Accepted Answer

Edison's comment about selling the 25 percent on the foreign market at a price below the "cost of production" suggests that he was willing to sell at a price that was lower than the average cost of production. However, since he estimated that he could increase his output by 25 percent with only a 2 percent increase in production costs, we can infer that his marginal cost was lower than his average cost. Additionally, since Edison was not making a profit selling light bulbs, we can infer that his marginal revenue was also lower than his average cost. Therefore, option A is the best choice as it reflects the relationship between Edison's marginal cost, average cost, and marginal revenue.

Thomas Edison Once Complained That He Was Not Making a Profit