Question

The chart shows the marginal cost and marginal revenue of producing apple pies.



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

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

Answer 1

The first option.

If marginal cost keeps rising while marginal revenue stays constant, each additional pie costs more to make but brings in the same revenue, so the profit per pie (MR − MC) falls.