Final answer:
The correct interpretation of C. C'(3) = 500 is that the factory is producing candy at an instantaneous rate of 500 pieces per hour, three hours after it starts operating.
Step-by-step explanation:
The best interpretation of C'(3) = 500 is that the factory is producing candy at a rate of 500 pieces per hour, 3 hours after it opens. This is because C' represents the derivative of the candy production function with respect to time, which tells us the instantaneous rate of change of candy production. Therefore, answer choice (a), stating the factory produces 500 pieces during the third hour, is incorrect because it does not specifically relate to an instantaneous rate.
Likewise, answer choice (b) is incorrect because it implies a cumulative total over three hours instead of a rate. Option (d) is also incorrect because it implies acceleration in production rate per hour, which does not match the provided information of an instantaneous rate at a given time. The correct answer is thus (c).