The above table shows the probability distribution of cake sales at Busy Betty's Bakery.
-Refer to the table above. Busy Betty sells her cakes for $20 each and her constant marginal cost to produce each cake is $12, which is equal to her (constant)average total cost. If she does not sell a cake the day she makes it, she sells it as day- old cake for $10. What is her expected marginal cost of holding the 23rd cake in inventory?

Question

Quizplus · Accepted Answer

The expected marginal cost of holding the 23rd cake in inventory is the difference between the expected revenue from selling the cake as a day-old cake and the marginal cost of producing the cake. The expected revenue from selling the cake as a day-old cake is $10, and the marginal cost of producing the cake is $12. Therefore, the expected marginal cost of holding the 23rd cake in inventory is $10 - $12 = -$2.

The Above Table Shows the Probability Distribution of Cake Sales