Asked by Saadak Ahmed Mohamud on Jul 24, 2024
Verified
Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?
A) Shut down the business
B) Produce more custom-made shoes
C) Decrease the price
D) Produce fewer custom-made shoes
Marginal Cost
The cost of producing one additional unit of a good, important for decision-making in production processes.
Marginal Revenue
Marginal revenue is the additional income generated from selling one more unit of a good or service.
- Assess the comparison between marginal revenue and marginal cost to guide production decisions.
Verified Answer
AE
Ariana EdwardsJul 24, 2024
Final Answer :
D
Explanation :
Since the marginal cost ($84) of producing the 12th pair of shoes is higher than the marginal revenue ($70) generated from selling it, Mr. Raiman is losing money on each additional pair produced beyond the 11th pair. Therefore, he should produce fewer custom-made shoes to increase or maximize profit.
Learning Objectives
- Assess the comparison between marginal revenue and marginal cost to guide production decisions.
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