Question

The marginal revenue of the last bowl of soup a restaurant (in a perfectly competitive market) produced was $11 and its marginal cost was $4. Each time the restaurant produces an additional bowl of soup the marginal cost increases by 20% relative to the previous bowl. The restaurant should:

Answer 1

Answer:

The restaurant should:

decrease its marginal cost in order to maintain the marginal profit and ensure that the marginal cost is not more than the average cost.

Explanation:

Company A's marginal cost represents the incremental costs incurred when the company produces an additional unit of its good or service.  This company's marginal cost is calculated by dividing the total change in the cost of producing more goods by the change in the number of goods produced.  For example, if the cost of production increases by $120 when additional 10 units of goods are produced, then the marginal cost = $12 ($120/10).