MB vs MC - Unit 1 Year 11 Econs

Define marginal cost

The cost of a firm producing an additional unit

Define Marginal benefit

The benefit a firm receives if it produces an additional unit

What curve represents the MB curve on a graph?

The demand curve

What curve represents the MC curve on a graph?

The supply curve

Why does the MB curve slope downwards?

It slopes downward because as a consumer consumes more of a good or service, their additional satisfaction (MB) decreases with each unit

Why does the MC curve slope upwards?

An MC curve typically slopes upwards because of the principle of diminishing marginal returns - this means that as a firm producers more units of an item, the additional cost of producing subsequent items increases, leading to higher MC with each additional unit produced.

What does the law of diminishing marginal utility state?

The law of diminishing marginal utility states that: the more of a good you consume: the less additional utility you get from each additional unit

What does the law of diminishing marginal returns state?

The law of diminishing marginal returns states that as a firm adds more units of a variable input (like labour) into a fixed input (like land) the additional output gained from each extra unit of the variable input becomes smaller, causing marginal costs to rise

(Additional info) When production increases, firms may need to utilise less efficient production methods or pay higher prices for additional resources, further contributing to the upward slope of the MC curve