Stella is considering producing one more unit of steel at her manufacturing plant

Economics Dec 15, 2020

Stella is considering producing one more unit of steel at her manufacturing plant. She calculates that her costs will increase by $5,500 if she produces this unit, while her benefits from producing this additional unit will increase by $5,600. Stella should

a. produce the additional unit.

b. not produce the additional unit.

Expert Solution

The answer is a. produce the additional unit.

Sheila should produce the extra unit because the marginal benefit of $5,600 is greater than the marginal cost of $5,500. Therefore, she will earn a marginal income of $100 (i.e. the difference) if the unit is produced.

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