In the context of marginal analysis, what is most likely to happen if a pie maker continues to produce additional pies beyond the point where marginal cost exceeds marginal benefit?

• A. The pie maker will reduce marginal cost.
• B. The pie maker will maximize total revenue.
• C. The pie maker's profits will increase.
• D. The pie maker's profits will decrease.

Answer: (D)

Verified step by step guidance

1. Understand the concept of marginal analysis, which involves comparing the marginal benefit (MB) and marginal cost (MC) of producing one more unit of a good or service.
2. Recognize that the optimal production level occurs where marginal benefit equals marginal cost (\(MB = MC\)), because producing beyond this point means the cost of making an additional pie is greater than the benefit gained from selling it.
3. Analyze what happens when production continues beyond the point where \(MC > MB\): each additional pie costs more to make than the revenue or benefit it generates.
4. Conclude that producing beyond this point leads to a decrease in profits, since the extra cost outweighs the extra benefit, reducing overall profitability.
5. Therefore, the pie maker should stop increasing production once marginal cost exceeds marginal benefit to avoid decreasing profits.