Why would an already-successful business owner conduct a marginal cost analysis for their product?

• A. To evaluate the historical performance of the business
• B. To determine if producing additional units will increase overall profit
• C. To calculate the total fixed costs of the business
• D. To set the price of the product based solely on competitor prices

Answer: (B)

Verified step by step guidance

1. Understand the concept of marginal cost: Marginal cost is the additional cost incurred from producing one more unit of a good or service.
2. Recognize the purpose of marginal cost analysis: It helps a business owner decide whether producing additional units is profitable by comparing marginal cost to marginal revenue.
3. Identify that evaluating historical performance involves looking at past data, which is different from marginal cost analysis focused on future production decisions.
4. Note that total fixed costs do not change with production levels and are not the focus of marginal cost analysis.
5. Understand that setting prices based solely on competitor prices ignores the firm's own cost structure, whereas marginal cost analysis directly relates to the firm's costs and profit maximization.