Suppose the fixed cost of building a nuclear power plant is $1 billion. Suppose also that the only variable cost is the labor of Homer Simpson, and he earns $10 per hour. If the plant generates 1,000 kilowatts each hour, and has already generated 1 billion kilowatts, what can you say about the marginal cost of the next kilowatt?
A. The marginal cost is falling.
B. The marginal cost is equal to $.01.
C. The marginal cost is equal to $1.01.
D. The marginal cost is rising.
Answer: B
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