Question

When a restaurant produces one pizza, the variable cost is $6. when the restaurant produces two pizzas the variable cost is $9. What is the marginal cost of the second pizza?

O $3
O$6
O $1.50
O $9

Answer 1

The marginal cost of the second pizza is $3 (option 1), calculated by the increase in total variable costs when producing an additional pizza. This figure is essential in pricing, considering production costs and desired profit margins.

Step-by-step explanation:

The marginal cost of producing an additional item is the cost of producing one more unit of a good or service. In our example, when the restaurant produces one pizza, the variable cost is $6. When the restaurant produces a second pizza, the total variable cost increases to $9. Therefore, the marginal cost of the second pizza can be calculated by subtracting the total variable cost of one pizza from the total variable cost of two pizzas.

Marginal cost of the second pizza = Total variable cost for producing two pizzas - Total variable cost for producing one pizza.

Marginal cost of the second pizza = $9 - $6 = $3.

So, the marginal cost of the second pizza is $3. This calculation helps the firm decide the price to charge for their pizzas by considering both the cost of production and the desired profit margin, which includes factors such as ingredients, rent, wages, and the pizza oven cost.