Question

What are marginal benefit and marginal cost? How do they relate to demand and supply?

Explain market efficiency using marginal benefit and marginal cost.

Describe consumer and producer surplus. Draw a graph and use it to identify consumer and producer surplus.

Answer 1

QUESTION : What are marginal benefit and marginal cost? How do they relate to demand and supply?

In order to produce an addition unit of an output, the cost incurred by a firm or a producer can be termed as marginal cost. Similarly, the benefit received from consuming an additional unit of a particular good or service by a consumer can be defined as marginal benefit. If a consumer consume more and more of a particular good or service, the marginal benefit associated with it will decline. Marginal benefit curve is similar to demand curve. As quantity consumed increases, the marginal benefit will decline along with each additional unit consumed. Supply of a firm is closely dependent on its marginal cost. The cost of producing each additional unit of a good is considered by a firm or producer while deciding his quantity to be supplied. This cost is marginal cost.