Suppose that the slope of a line tangent to the total cost curve at point X is equal to the slope of a line tangent to the total benefit curve at point X,then:
A) net benefit would be increased by reducing the amount of the activity.
B) net benefit would be decreased by reducing the amount of the activity.
C) net benefit would be increased by increasing the amount of the activity.
D) net benefit is maximized.

Question

Quizplus · Accepted Answer

When the slope of the total cost curve is equal to the slope of the total benefit curve at a particular point, this means that the marginal cost is equal to the marginal benefit at that same point. In other words, the cost of producing one more unit of the activity is exactly equal to the benefit of producing one more unit of the activity. At this point, the net benefit of the activity is at its maximum. Therefore, reducing or increasing the amount of the activity would result in a decrease in net benefit, since any change in production would move away from the point of maximum net benefit. Thus, the correct answer is D: net benefit is maximized.

Suppose That the Slope of a Line Tangent to the Total