48. Laura is a gourmet chef who runs a small catering business in a competitive

Question

48. Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $200. In order to maximize profits, Laura should (Points : 5)       make more than 20 wedding cakes per month.
      make fewer than 20 wedding cakes per month.
      continue to make 20 wedding cakes per month.
      We do not have enough information with which to answer the question.


48. Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $200. In order to maximize profits, Laura should (Points : 5)       make more than 20 wedding cakes per month.
      make fewer than 20 wedding cakes per month.
      continue to make 20 wedding cakes per month.
      We do not have enough information with which to answer the question.

Explanation / Answer

Make more than 20 wedding cakes a month because marginal revenue of 2,500/20= 250 exceeds the marginal cost of 200. She should manufacture up to the point where marginal cost = marginal revenue.

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