Question

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

Answer 1

I would advise Mr. Raiman to reduce the quantity of output produced.

Explanation:

Mr. Raiman produces 12 pairs of shoes per week.

The marginal cost incurred in producing the 12th pair is $84.

The marginal revenue earned from the 12th pair is $70.

The marginal cost is greater than marginal revenue. This means that Mr. Raiman is having a loss.

In order to maximize profits, he should produce at the point where the marginal cost is equal to marginal revenue.

So, I would suggest him to reduce the output to the level where marginal cost is equal to marginal revenue.