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-(Table: Total Product of Labor at Debbie's Bakery)Use Table: Total Product of Labor at Debbie's Bakery.Debbie can sell cakes at $8 each.Debbie must pay each worker $45 per day.How many workers will she hire to maximize profit?
A)2
B)3
C)4

Question

Use the following to answer question: 
-(Table: Total Product of Labor at Debbie's Bakery)Use Table: Total Product of Labor at Debbie's Bakery.Debbie can sell cakes at $8 each.Debbie must pay each worker $45 per day.How many workers will she hire to maximize profit?
A)2 
B)3 
C)4

Quizplus · Accepted Answer

The maximum profit is achieved when the marginal revenue (MR) equals the marginal cost (MC). In this case, the MR is $8 (price of each cake) and the MC is the wage paid to each worker, which is a constant $45 per day. Looking at the table, the marginal product (MP) of the first worker is 70, which means that the revenue generated by the first worker is $8 x 70 = $560, and the cost is $45. The profit is $515. For the second worker, the MP is 110, so the revenue is $8 x 110 = $880, and the cost is $90 (two workers). The profit is $790. For the third worker, the MP is 120, so the revenue is $8 x 120 = $960, and the cost is $135 (three workers). The profit is $825. For the fourth worker, the MP is 125, so the revenue is $8 x 125 = $1000, and the cost is $180 (four workers). The profit is $820. For the fifth worker, the MP is 122, so the revenue is $8 x 122 = $976, and the cost is $225 (five workers). The profit is $751. Therefore, the best choice is to hire 3 workers to maximize profit.

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