If the marginal benefit of the last unit of a good or service consumed was $25, the marginal benefit of the next unit consumed is most likely to be:
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In most cases, the marginal benefit of a good or service decreases as the quantity consumed increases. So, $24 is the most likely answer. This principle is called decreasing marginal benefit.
Marginal benefit is most accurately described as the:
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Marginal benefit is the benefit a consumer receives from consuming an additional unit of a good or service. It is quantified as the maximum price that a consumer is willing to pay for one additional unit of a good or service.
Marginal cost is most accurately defined as the:
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Marginal cost is the cost of producing one more unit of output.
A columnist is discussing how the efficient quantity of output for a good or service is determined. These two statements appear in his column:
Statement 1: The equilibrium quantity of production for a good or service can be considered efficient as long as the marginal social benefit of that quantity is greater than its marginal social cost.
Statement 2: Subsidies and quotas typically result in production of a good or service in quantities at which the marginal social cost exceeds the marginal social benefit.
With respect to these statements:
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Statement 1 is incorrect. The efficient quantity of output is the quantity at which the marginal social benefit (demand) is equal to the marginal social cost (supply). Statement 2 is also incorrect. Subsidies typically lead to overproduction, where the marginal social cost at the quantity produced is greater than the marginal social benefit. Quotas, however, typically limit production to a level below equilibrium, such that the marginal social benefit at the quantity produced is greater than the marginal social cost.
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