Question

Frida makes bread every day and due to demand she is thinking of increasing her bread production. In order to make this decision, she would calculate her marginal costs of bread production (increased number of employees, equipment, etc.) and her marginal benefits (number of loaves sold, price paid, new customers, etc.) and continue to produce where Select the correct answer below:
a. MB b. MB>MC or until they are equal.
c. total benefits equal total costs.
d. the price of bread equals exactly the marginal benefit of each loaf.

Answer 1

Answer: b. MB > MC or until they are equal.

Explanation:

It is best that Frieda produces bread at the level where Marginal benefits exceeds marginal costs. The difference will keep giving her more profit.

She should keep increasing her production so long as the Marginal benefit exceeds marginal cost but should stop at the level where the Marginal benefit and marginal cost become equal because producing past this point would mean that she would incur a marginal loss on each unit.