Consider a firm that produces peanut butter.An increase in the price of peanuts will cause the firm to lower its output because
A) fixed costs will rise.
B) marginal cost will rise.
C) the price of peanut butter will rise.
D) marginal revenue will fall.

Question

Quizplus · Accepted Answer

An increase in the price of peanuts will increase the marginal cost of producing peanut butter, since peanuts are a key input. As a result, the firm will lower its output in order to maintain profitability. None of the other options are directly affected by the increase in the price of peanuts.

Consider a Firm That Produces Peanut Butter