Gideon's Shoe Repair also produces custom-made shoes. When Gideon produces 12 pairs a week, the marginal cost (MC) of the twelfth pair is R840, and the marginal revenue (MR) of that unit is R700. What would you advise Gideon to do?

Question

Quizplus · Accepted Answer

Since the marginal cost (MC) of the twelfth pair is R840, and the marginal revenue (MR) of that unit is R700, it means that Gideon is making a loss of R140 on each pair of shoes. This loss is unsustainable, so the best choice would be for Gideon to produce fewer custom-made shoes. By reducing production, he would reduce his losses and improve his profitability.

Gideon's Shoe Repair Also Produces Custom-Made Shoes