If the marginal utility of apples exceeds the marginal cost of producing apples, then in a free market production of apples will ____, with the likely result that marginal utility will ____.
A)rise; fall
B)fall; rise
C)rise; rise
D)fall; fall

Question

Quizplus · Accepted Answer

If the marginal utility of apples exceeds the marginal cost of producing apples, then it is profitable for producers to increase production. As a result of increased production, the supply of apples in the market will increase. This increase in supply will cause the price of apples to fall.

As the price of apples falls, the marginal utility of apples for consumers will start to rise as more and more people can afford to buy apples. However, the marginal utility for each consumer may not rise indefinitely. This is because the law of diminishing marginal utility states that as a consumer consumes more of a good, the additional satisfaction or utility derived from each additional unit of the good decreases.

Therefore, in the short run, the marginal utility of apples may fall as a result of increased supply and lower prices, but in the long run, it may rise again as consumer demand adjusts to the new market price.

If the Marginal Utility of Apples Exceeds the Marginal Cost