Which term is defined as the cost added by producing one additional unit of a product or service?

Which term is defined as the cost added by producing one additional unit of a product or service?

• A. Incremental Costs
• B. Marginal Costs
• C. Money Supply
• D. Demand Pull Inflation

Answer: (B)

The concept being tested is the cost that appears when you produce one more unit. Marginal cost is the change in total cost that comes from increasing output by a single additional unit. It’s the exact measure you’d use to decide whether producing that extra unit makes sense—if the revenue gained from selling one more unit (marginal revenue) is greater than the cost of producing it (marginal cost), you gain profit by producing more; once marginal cost rises above marginal revenue, adding more units reduces profit. In practice, marginal cost often increases as output grows because of diminishing returns, so the marginal cost curve slopes upward. The other terms don’t fit this specific definition. Money supply refers to the total amount of money in circulation in an economy, not the cost of producing additional units. Demand-pull inflation is a type of inflation driven by higher overall demand, not a measure of production costs. Incremental costs can refer to costs associated with a particular change or project, but they aren’t the standard term for the cost of producing one extra unit.

The concept being tested is the cost that appears when you produce one more unit. Marginal cost is the change in total cost that comes from increasing output by a single additional unit. It’s the exact measure you’d use to decide whether producing that extra unit makes sense—if the revenue gained from selling one more unit (marginal revenue) is greater than the cost of producing it (marginal cost), you gain profit by producing more; once marginal cost rises above marginal revenue, adding more units reduces profit. In practice, marginal cost often increases as output grows because of diminishing returns, so the marginal cost curve slopes upward.

The other terms don’t fit this specific definition. Money supply refers to the total amount of money in circulation in an economy, not the cost of producing additional units. Demand-pull inflation is a type of inflation driven by higher overall demand, not a measure of production costs. Incremental costs can refer to costs associated with a particular change or project, but they aren’t the standard term for the cost of producing one extra unit.