The decision to apply fertilizer should be based on comparing the added cost to what potential benefit?

• A. Value of increased production
• B. Change in price of fertilizer
• C. Fixed costs
• D. Tax effects

Answer: (A)

When deciding whether to apply fertilizer, the key idea is marginal analysis: weigh the added cost of the input against the extra value it creates. The fertilizer’s benefit comes from the value of the additional production it yields, which is the extra quantity produced times the market price. If that added value is greater than the cost of applying the fertilizer, the decision to fertilize increases profit. That’s why the correct choice is the value of the increased production. The change in fertilizer price, fixed costs, or tax effects may influence overall profitability, but they are not the direct measure of the immediate benefit from one more unit of fertilizer.