Table 18-12
The table displays data for a small, competitive, profit-maximizing firm that produces and sells envelopes. The time frame is one week.
-Refer to Table 18-12. Suppose the firm sells each box of envelopes that it produces for $6. What is the marginal profit of the fourth worker?
A)$-132
B)$-96
C)$132
D)$504

Question

Table 18-12
The table displays data for a small, competitive, profit-maximizing firm that produces and sells envelopes. The time frame is one week. 
-Refer to Table 18-12. Suppose the firm sells each box of envelopes that it produces for $6. What is the marginal profit of the fourth worker?
A)$-132 
B)$-96 
C)$132 
D)$504

Quizplus · Accepted Answer

To find the marginal profit of the fourth worker, we need to calculate the change in total revenue and total cost when the fourth worker is hired.

The change in total revenue is equal to the additional boxes of envelopes produced by the fourth worker (20) multiplied by the selling price ($6), which equals $120.

The change in total cost is equal to the additional wage paid to the fourth worker ($180) plus the additional materials cost of producing 20 boxes of envelopes, which is calculated by multiplying the additional inputs required (4 units of labor and 30 units of materials) by their respective prices (wage rate of $15 and material cost of $0.10 per unit), which equals $210.

Therefore, the marginal profit of the fourth worker is the change in total revenue minus the change in total cost, which is $120 - $210 = -$90.

Since the marginal profit is negative, the firm should not hire the fourth worker if its goal is to maximize profits. Therefore, the best choice is not to hire the fourth worker.

Table 18-12 The Table Displays Data for a Small, Competitive, Profit-Maximizing Firm