Ralph wants to buy some milk and a box of cereal. If Ralph buys 2 quarts of milk at $1 per quart, the box of cereal costs 75 cents. If he buys 3 quarts of milk at $1 per quart, the box of cereal is free. For Ralph, the marginal cost of the third quart of milk is
A) zero.
B) 25 cents.
C) 75 cents.
D) $1.

Question

Quizplus · Accepted Answer

The marginal cost of the third quart of milk is the additional cost incurred when buying the third quart. Since the box of cereal becomes free when buying 3 quarts, Ralph saves 75 cents on the cereal, making the effective additional cost of the third quart of milk $1 - $0.75 = 25 cents.

Ralph Wants to Buy Some Milk and a Box of Cereal