Which of the costs discussed in the chapter is the most important when a firm is deciding how much to produce?
A. Marginal cost because this cost shows the additional cost associated with producing one more unit of output. Firms will use this information to decide to produce more or less output.
B. Variable costs because these costs change as output changes. If the firm wants to maximize profits, it will choose to produce a quantity where variable costs are minimized.
C. Fixed costs because these costs are spent and cannot be changed in the time period under consideration. If fixed costs are higher, the firm will choose to produce more output.
D. Costs that are spent to improve the image of the firm. A firm will choose to increase output if it spends a large amount on advertising and brand image.
Ans: A. Marginal cost because this cost shows the additional cost associated with producing one more unit of output. Firms will use this information to decide to produce more or less output.
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