To answer this question, let's define what marginal cost and marginal revenue are, and clarify the difference between the two concepts:
Marginal Cost (MC):
Marginal cost is the cost of producing one additional unit of a good or service. It is the cost that results from an increase in production. This cost includes all the expenses that the company incurs when it produces one more unit of the product, such as materials, labor, and other variables that change with the level of production.
Marginal Revenue (MR):
Marginal revenue, on the other hand, is the additional income that a firm receives from selling one more unit of a good or service. It essentially shows the extra money the business would earn by increasing its sales volume by one unit.
Now, let's look at each statement to identify which one correctly describes the difference between marginal cost and marginal revenue:
1. "Marginal cost is the money earned from selling one more unit of a good. Marginal revenue is the money paid for producing one more unit of a good."
- This statement is incorrect because it swaps the definitions of marginal cost and marginal revenue.
2. "Marginal cost is the money paid for producing one more unit of a good. Marginal revenue is the money earned from selling one more unit of a good."
- This statement is correct. It accurately represents the definition of marginal cost as the cost of producing one more unit and marginal revenue as the income from selling one more unit.
3. "Marginal cost is the money a producer might make from one more unit. Marginal revenue is the money a producer actually makes from one more unit."
- This statement is incorrect because marginal cost is not about making money but spending it on production. Marginal revenue is about income, not about what one "might" make, but what is actually made from selling another unit.
4. "Marginal cost is the money a producer actually makes from one more unit. Marginal revenue is the money a producer might make from one more unit."
- This statement is incorrect for the same reasons as the previous one: it misrepresents marginal cost as income rather than cost and presents marginal revenue as speculative rather than actual.
Given these clarifications, the second statement is the correct one. Marginal cost is the money paid for producing one more unit of a good, and marginal revenue is the money earned from selling one more unit of a good.
