Hannan's pizza shop currently produces 100 pizzas per day and sells them for a profit. She is considering expanding her pizza operation in order to make more pizza. Should she expand? a. Yes, because making pizzas is profitable. No, because she may not be able to sell the additional pizzas. It depends op the marginal cost of producing more pizzas and the marginal revenue she will earn from selling more pizzas. d. It depends on the average cost of producing more pizzas and the average revenue she will earn from selling more pizzas.
Q36
Option a can be eliminated because the reason doesn't account for future profitability. It doesn't account for cost of producing additional units of pizza.
Option b can be eliminated because it doesn't give a valid reason for not expanding. There is no basis for assuming that Hannan will not be able to sell additional pizzas.
Option C use the best argument. It accounts for cost and revenue of every additional unit in terms of marginal cost and ,marginal revenue. It makes sense to produce more if the marginal cost is less than the marginal revenue. Production should be increased till marginal cost is equal to marginal revenue in order to maximize profits.
Average cost and average revenue should not be considered when deciding to produce additional outputs. The average revenue will remain the same if price doesn't change. Therefore, option D can also be eliminated as it doesn't give us a valid argument.
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