Refer to the figure below, which shows marginal benefits (MB and marginal cost (

Question

Refer to the figure below, which shows marginal benefits (MB and marginal cost (MC) of activity A 40F 30 MC 20 10F MB 0 100 200 300 400 500 Activity A If the decision maker is choosing 400 units of activity A this level maximizes net benefits. the activity could be reduced by one unit and net benefits will Increase by $10 the activity could be reduced by one unit and net benefits will rise by $25 the activity could be Increased by one unit and net benefits will Increase by $15. the activity could be reduced by one unit and net benefits would decrease by $10

Explanation / Answer

The correct option should be the activity could be reduced by one unit and net benefits will increase by $10. The difference between MB and MC is 15-25 = -10 which means that the activity should be reduced and one unit reduction will result in increase in net benefits by 10.

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