In the context of marginal analysis, what is most likely to happen if the pie maker bakes a seventh pie?

• A. The average cost of all pies will decrease automatically.
• B. The total profit will always increase regardless of marginal cost and benefit.
• C. The marginal cost of baking the seventh pie may exceed the marginal benefit, leading to a decrease in overall profit.
• D. The marginal benefit will always be greater than the marginal cost for every additional pie baked.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of marginal analysis, which involves comparing the marginal benefit (MB) and marginal cost (MC) of producing one more unit—in this case, the seventh pie.
2. Step 2: Define marginal benefit as the additional revenue or satisfaction gained from baking the seventh pie, and marginal cost as the additional cost incurred from baking that pie.
3. Step 3: Recognize that if the marginal cost of baking the seventh pie exceeds the marginal benefit, producing that pie will reduce overall profit because the cost of making it is greater than the revenue it generates.
4. Step 4: Note that average cost does not automatically decrease with each additional pie; it depends on how the total cost changes relative to the number of pies baked.
5. Step 5: Conclude that the decision to bake the seventh pie should be based on whether the marginal benefit is greater than or equal to the marginal cost to ensure profit maximization.