When Deciding Whether to Buy a Second Car, Marginal Analysis

question 94

Multiple Choice

When deciding whether to buy a second car, marginal analysis indicates that the purchaser should compare the:

• A) benefits expected from two cars with the cost of both.
• B) additional benefits expected from a second car with the cost of the two cars.
• C) dollar cost of the two cars with the potential income that the cars will generate.
• D) additional benefits of the second car with the additional cost of the second car.

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Definitions:

Zero Revenues

A situation where a business or organization does not generate any income from its activities or operations.

Profit-Maximizing Monopolist

A monopolist's strategy of setting a price and production level where marginal cost equals marginal revenue to achieve the highest possible profit.

Price-Elastic

A characteristic of goods or services for which demand significantly changes with small changes in price.

Marginal Revenue

The revenue increase from the sale of an additional unit of a good or service.