(Table: Total Product of Labor at Debbie's Bakery) Debbie owns a bakery and can hire workers to produce cakes selling in a competitive output market at $10 each.The table Total Product of Labor at Debbie's Bakery shows the relation between the number of workers and the number of cakes produced.If Debbie must pay each worker a competitive market wage of $40 per day, how many workers will she hire to maximize profit?
A)three
B)four
C)five
D)six

Question

(Table: Total Product of Labor at Debbie's Bakery) Debbie owns a bakery and can hire workers to produce cakes selling in a competitive output market at $10 each.The table Total Product of Labor at Debbie's Bakery shows the relation between the number of workers and the number of cakes produced.If Debbie must pay each worker a competitive market wage of $40 per day, how many workers will she hire to maximize profit?
A)three 
B)four 
C)five 
D)six

Quizplus · Accepted Answer

To maximize profit, Debbie should hire workers until the marginal product of labor (MPL) equals the wage rate divided by the price of the output (W/P). In this case, the price of the output is $10 each and the wage rate is $40 per day, so W/P = 4. Looking at the table, we can see that MPL is highest at the fourth worker, where it is equal to 20. Hiring more workers would result in a decrease in MPL, meaning that it would cost more to produce each additional cake than the revenue received for selling it. Therefore, Debbie should hire five workers to maximize her profit.

(Table: Total Product of Labor at Debbie's Bakery) Debbie Owns