Answered


0		\$0.00\$0.00--\$0.00

1		\$1.00\$1.00\$10.00\$10.00\$9.00

2		\$1.50\$0.50\$20.00\$10.00\$18.50

3		\$1.75\$0.25\$30.00\$10.00\$28.25

4		\$2.25\$0.50\$40.00\$10.00\$37.75

5		\$3.50\$1.25\$50.00\$10.00\$46.50

6		\$5.00\$1.50\$60.00\$10.00\$55.00






What most likely will happen if the pie maker continues to make additional pies?


AThe marginal costs will continue to rise, increasing the total cost, while the marginal revenue remains the same, decreasing the profit earned for each pie.
BThe marginal costs will continue to fall, decreasing the total cost, while the marginal revenue remains the same, increasing the profit earned for each pie.
CThe marginal costs will continue to rise, increasing the total cost, while the marginal revenue remains the same, increasing the profit earned for each pie.
DThe marginal costs will continue to fall, decreasing the total cost, while the marginal revenue remains the same, decreasing the profit earned for each pie.

Verified Answer :

  • The marginal revenue is constant at \(\$10.00\) per unit.
  • The marginal cost is observed to be rising from \(\$0.25\) to \(\$1.50\) between Q=3 and Q=6.
  • Since \(\text{Marginal Profit} = \text{MR} - \text{MC}\), an increasing \(\text{MC}\) with a constant \(\text{MR}\) results in a decreasing marginal profit for each additional pie.
  • The correct observation is that marginal costs will continue to rise, increasing the total cost, while marginal revenue remains constant, which decreases the profit earned for each individual pie.
  • Final Answer: \(\boxed{\text{The marginal costs will continue to rise, increasing the total cost, while the marginal revenue remains the same, decreasing the profit earned for each pie.}}\)

Explanation

  1. Analyzing Marginal Cost and Revenue Trends

The data provided in the table shows the cost and revenue structure for producing pies. To understand the future trend, we must analyze the marginal cost and marginal revenue. The marginal revenue (MR) is constant at \(\$10.00\) for every additional pie produced. The marginal cost (MC), which is the cost of producing one additional unit, is calculated as the change in total cost. Looking at the values from Q=3 to Q=6, we see the marginal costs are \(\$0.25, \$0.50, \$1.25,\) and \(\$1.50\). This shows that the marginal cost is clearly rising after Q=3.

  1. Evaluating the Impact on Profit

Marginal profit is defined as the difference between marginal revenue and marginal cost (\(\text{Marginal Profit} = \text{MR} - \text{MC}\)). Since the marginal revenue remains constant at \(\$10.00\) while the marginal cost is increasing, the marginal profit earned from each additional pie decreases. Specifically, as the production volume continues to rise, the increasing marginal cost directly reduces the contribution of each subsequent unit to the overall profit. Thus, while total profit may still increase as long as MR > MC, the incremental gain from each additional pie produced continues to decline due to the rising marginal cost.

  1. Conclusion and Selection of the Correct Option

Comparing these findings with the given options, we identify that the first option correctly describes the observed economic relationship: marginal costs are rising, which leads to an increase in total costs, and since marginal revenue remains constant, the profit contribution for each additional unit (marginal profit) decreases. Therefore, the most likely outcome is that the marginal costs will continue to rise, increasing the total cost, while the marginal revenue remains the same, decreasing the profit earned for each pie.

Examples

This scenario illustrates the law of diminishing returns in production. For example, a small bakery might find that initially, adding one more oven increases efficiency, but eventually, adding more ovens requires hiring more staff, clearing more space, and managing complex logistics. Each new oven (or unit of production) becomes incrementally more expensive to operate compared to the constant price they can charge per pie, meaning the 'extra' profit from each new unit eventually gets smaller. This helps business owners determine the point where producing more goods no longer makes financial sense.

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