Question

City Gas is a natural monopoly that supplies natural gas to a particular city. Its cost and demand information are given below. The marginal cost of going from a production of 4 million therms to a production of 5 million therms is:________.a. $20 MILLIONb. $25 MILLIONc. $10 MILLIONd. $35 MILLION

Answer 1

The correct answer is A

Step-by-step explanation:

Marginal cost is defined as the change in the aggregate cost which arises when the quantity produced or manufactured is incremented or increase through single unit.

In short, it is stated as the cost of producing the one more unit of the product or the good.

The marginal cost will be computed as:

= Earlier therms × Increase in therms

= $4 million × $5 million

= $20 million

Therefore, the marginal cost of the therms is $20 million