Suppose you are deciding whether or not to increase production. You are currently making a profit. If you produce one more unit your increase in cost will be $10, your average variable costs will increase to less than that and your average fixed costs will decrease. Finally, your average revenue will increase to $12, but your increase in revenue will be $11. You should

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Quizplus · Accepted Answer

BIncreasing production by at least 1 unit is advisable because the increase in revenue ($11) is greater than the increase in cost ($10), indicating a profit on the additional unit. The fact that average variable costs increase to less than the increase in cost and average fixed costs decrease further supports this decision, as it implies a more efficient spread of fixed costs and manageable variable costs. Additionally, the increase in average revenue to $12, although not directly related to the decision for the marginal unit, suggests a positive trend in revenue per unit. Therefore, both increasing production by at least 1 unit and considering an increase by exactly 1 unit are viable options, depending on further analysis of costs and revenues beyond the first additional unit.

Suppose You Are Deciding Whether or Not to Increase Production