Table 1-4
Eva runs a small bakery in the village of Roggerli. She is debating whether she should extend her hours of operation. Eva figures that her sales revenue will depend on the number of hours the bakery is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $12 per hour.
-Refer to Table 1-4. Using marginal analysis, determine how many hours should Eva extend her bakery's hours of operations?
A) 2 hours
B) 3 hours
C) 4 hours
D) 5 hours
E) 6 hours

Question

Table 1-4
  Eva runs a small bakery in the village of Roggerli. She is debating whether she should extend her hours of operation. Eva figures that her sales revenue will depend on the number of hours the bakery is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $12 per hour.
-Refer to Table 1-4. Using marginal analysis, determine how many hours should Eva extend her bakery's hours of operations?
A) 2 hours 
B) 3 hours 
C) 4 hours 
D) 5 hours 
E) 6 hours

Quizplus · Accepted Answer

To determine the optimal number of hours to extend the bakery's operations, we need to use marginal analysis. Marginal analysis compares the additional revenue gained from adding one more hour of operation to the additional cost of hiring a worker for that hour. The table shows that the revenue generated per hour increases for the first 4 hours of operation but then decreases for every additional hour. The cost of hiring a worker is a constant $12 per hour.

By comparing the additional revenue and cost for each hour of operation, we can determine that adding 4 hours is the optimal choice.

- For the first hour, the additional revenue gained ($38) is greater than the cost of hiring a worker ($12), so it makes sense to add this hour.
- For the second hour, the additional revenue gained ($34) is still greater than the cost of hiring a worker ($12), so it also makes sense to add this hour.
- For the third hour, the additional revenue gained ($28) is still greater than the cost of hiring a worker ($12), so it makes sense to add this hour as well.
- For the fourth hour, the additional revenue gained ($20) is still greater than the cost of hiring a worker ($12), so it also makes sense to add this hour.
- For the fifth hour, the additional revenue gained ($8) is less than the cost of hiring a worker ($12), so it does not make sense to add this hour.
- For the sixth hour, the additional revenue gained (-$12) is even less than the cost of hiring a worker ($12), so it definitely does not make sense to add this hour.

Therefore, the optimal number of hours to extend the bakery's operations is 4 hours.

Table 1-4 Eva Runs a Small Bakery in the Village