Thirsty Thelma owns and operates a small lemonade stand. When Thelma is producing a low quantity of lemonade she has few workers and her equipment is not being fully utilized. Because she can easily put her idle resources to use,
A)the marginal cost of an extra worker is large.
B)the marginal cost of one more glass of lemonade is smaller than if output were high.
C)the marginal product of an extra worker is small.
D)her lemonade stand is likely to be crowded with workers.

Question

Quizplus · Accepted Answer

When Thelma is producing a low quantity of lemonade, her equipment is not being fully utilized, and she has few workers. This means that her marginal cost of production is lower, and she can produce one more glass of lemonade at a smaller cost than if her output were high. This is because her fixed costs, such as her equipment, are already paid for, and she only has to pay for the variable costs, such as the labor and ingredients for each additional glass of lemonade. Therefore, the marginal cost of one more glass of lemonade is smaller when she is producing a low quantity of lemonade.

Thirsty Thelma Owns and Operates a Small Lemonade Stand