Question

Assume the world market for oil is competitive and that the marginal cost of producing another barrel of oil is $79.40 and the marginal benefit is $81.60. If one more barrel of oil is produced and consumed surplus changes?The Economic surplus will ____.a) decrease by $161.00.b) increase by $2.20.c) increase by $81.60.d) decrease by $2.20.

Answer 1

Answer:

b. Increase by $2.20

Explanation:

Economic Surplus is the total benefit to society from production.

If an additional unit is produced the additional cost will be $79.40 and it will the additional benefit of $81.60.

So the surplus = benefit - cost = $81.60 - $79.40 = $.2.20

They are marginal quantities (change made by additional unit) so everything has been taken into account for the deriving of change to surplus.