- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 1. The Firm and Market Structures
- Subject 3. Marginal Revenue, Marginal Cost and Profit Maximization
CFA Practice Question
Dora receives $10 for each pizza that she sells. However, the marginal cost of pizza production increases with each pizza produced. The marginal cost of the first pizza is $1. How many pizzas should Dora sell?
A. Dora should sell only one pizza, because the first pizza costs the least.
B. Dora should sell pizzas until the marginal cost of the last pizza is $10.
C. We cannot tell what Dora should do from the information given.
Explanation: According to the marginal principle, Dora should sell pizzas until the marginal benefit of the last pizza ($10) is equal to the marginal cost.
User Contributed Comments 4
| User | Comment |
|---|---|
| ColonelCFA | So we ignore the existence of fixed costs? |
| lighty0770 | agree with colonelCFA. Without knowing what fixed costs are we cannot tell |
| FFalas | I also got it wrong. Wording should be better "receives 10 per pizza" i guess was intended to imply that her MR is 10$ (a benefit, hence net of Fixed costs) |
| Caliph | Profit max = MR=MC=P |