The key to the importance of the marginal cost curve of a company is that it is its:
A) supply curve of product to the marketplace.
B) demand curve for its product to the marketplace.
C) average cost of product in both the short and long run.
D) fixed cost.

Question

Quizplus · Accepted Answer

The marginal cost curve represents the additional cost incurred by the company to produce each additional unit of output. It is the supply curve of the company because it shows the minimum price that the company is willing to accept for each unit of output. As the price in the market falls below the marginal cost, the company will reduce its supply. Hence, choice A is the correct answer. Choice B is incorrect because the demand curve of the company is determined by the market conditions and the preferences of the consumers. Choice C is incorrect because the average cost curve represents the total cost of production divided by the total output. The marginal cost is the additional cost to produce the next unit of output. Choice D is incorrect because fixed costs do not vary with the level of output.

The Key to the Importance of the Marginal Cost Curve