The correct answer is: B. Both (A) and (R) are true, but (R) is not the correct explanation of (A)
Marginal cost is the change in total cost that results from producing one additional unit of output. Differential cost is the difference in total cost between two different levels of output.
Marginal cost and differential cost are not always the same. For example, if a company produces 100 units of output and its marginal cost is $10 per unit, then its total cost is $1000. If the company produces 101 units of output, its marginal cost may be $11 per unit, and its total cost will be $1101. However, the differential cost of producing 101 units of output is only $1, because the only difference in cost between producing 100 units and 101 units is the cost of producing the 11th unit.
The reason that marginal cost and differential cost are not always the same is that fixed costs do not change when output changes. Fixed costs are costs that do not vary with the level of output. For example, a company may have a fixed cost of $1000 per month for rent. This means that the company will always have a cost of $1000 per month, regardless of how much output it produces.
When a company produces more output, its marginal cost will increase because the company will have to pay more for variable costs, such as the cost of materials and labor. However, the company’s differential cost will not increase by the same amount, because the company’s fixed costs will not change.
In conclusion, both (A) and (R) are true, but (R) is not the correct explanation of (A).