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Answer :
Final answer:
When the price of bread rises, the bakery shifts its resources to increase the supply of bread, rather than cakes. This reallocates production to maximize profits based on consumer demand. Therefore, the correct response is that the bakery decreases the supply of cakes to focus on more profitable bread production.
Explanation:
Understanding Bakery Production Adjustments
When the price of bread rises, it typically suggests that there is an increase in demand for bread, leading to a higher potential profit for the bakery. In response, the bakery will likely adjust its production quantities to maximize its profits. The options provided explore how the bakery might change its output in relation to cakes and bread.
Options Explained:
- A. decreases the supply of cakes: This is unlikely, as the bakery would want to capitalize on the increased price of bread, not reduce its other output.
- B. decreases the supply of bread: This does not make sense as the price of bread has increased, indicating that the bakery would not want to decrease supply.
- C. increases the quantity supplied of cakes: This option suggests that the bakery would increase its production of cakes in response to the price of bread. However, the focus should be on maximizing bread output.
- D. increases the supply of cakes: This means the bakery would create more cakes in addition to increasing its production of bread. However, typically, a rise in the price of one product, in this case, bread, would lead to a reallocation of resources toward that product.
Based on economic principles, when the price of bread rises, the bakery is most likely to reallocate resources from cake production to increase the supply of bread, rather than increasing the supply of cakes.
Learn more about Production adjustments in economics here:
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