Suppose Chen Receives a Promotion That Earns Him an Additional

question 57

Multiple Choice

Suppose Chen receives a promotion that earns him an additional $20,000 per year. If the MPC is 0.9, how much of the additional $20,000 that Chen earns will be spent?

• A) $20,000
• B) $2,500
• C) $17,500
• D) $18,000

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Definitions:

Minimum Efficient Scale

The smallest production quantity at which the long-run, total average cost is minimized.

Economies of Scale

Refers to the cost advantage that arises with increased output of a product, leading to a reduction in the per-unit cost.

Production Process

A sequence of steps or operations involved in the manufacture of goods or the delivery of services.

Minimum Efficient Scale

The smallest scale of production a firm can achieve while still taking full advantage of economies of scale.