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 ability to increase output with a relatively small increase in production cost suggests that the marginal cost (the cost of producing one more unit) was below the average cost (total cost divided by the number of units produced) but still less than the marginal revenue (the revenue from selling one more unit). This scenario allows for profit on additional units sold, even at a lower price, as long as the price covers the marginal cost.

Thomas Edison Once Complained That He Was Not Making a Profit