Question

Barb's Soccer Ball Company produces 800 soccer balls per week. If the firm used marginal cost pricing to determine soccer ball output, it would produce 600 soccer balls. Consumers do not receive the most desirable quantity of soccer balls from Bib's because:______.
A. Economic losses are occurring.
B. The firm must be earning higher than normal economic profits.
C. The cost of producing the additional 200 soccer balls is less than the amount that consumers are willing to pay for the additional soccer balls.
D. The cost of producing the additional 200 soccer balls is greater than the amount that consumers are willing to pay for the additional soccer balls.

Answer 1

Answer:

D. The cost of producing the additional 200 soccer balls is greater than the amount that consumers are willing to pay for the additional soccer balls.

Explanation:

The optimal production is where : Marginal cost of production = Marginal benefit from production.

Marginal cost & marginal benefit refer to additional cost (incurred by producers) & additional benefit (by consumers), associated with the additional production level. Marginal Benefit also reflect the consumers' (buyers') willingness to pay for the additional product. So, it is analogous to demand curve.

• Soccer balls optimal production level is where : its marginal cost = marginal benefit (price as per demand curve). It implies the production level of 600 soccer balls, as at that level 'marginal cost = marginal benefit = price'.
• However, it is producing 800 soccer balls. Marginal cost is higher than marginal benefit (price paying willingness) at this production point, of these additional 200 soccer balls.