ECO2305: Microeconomics 17 Section l: Short Answer [15 Marks Total] Answer all q
ID: 1121397 • Letter: E
Question
ECO2305: Microeconomics 17 Section l: Short Answer [15 Marks Total] Answer all questions on the test paper, showing all necessary calculations Numbers in square brackets indicate mark per question. e Question One: Suppose the total benefits (in terms of increased sales) to Booster Juice from hiring adlitional employees are represented by the following schedule: 1 employee, $40/day; 2 employees $70/day; 3 employees, $90/day; 4 employees, $100/day. a. Calculate the marginal benefit (MB) of each employee. (presenting in a table may be helpfu) b. Suppose Booster Juice pays its employees $25/day. How many employees would they be willing to hire? Explain why. 12Explanation / Answer
Marginal benefit is change in total benefits due to change in number of employees.
No. Of employees. MB
1. -
2. 70-40=30
3. 90-70=20
4. 100-90=10
b) It will choose 2 employees to hire. To maximize profit a firm operates at a level where marginal cost of hiring one more worker is equal to marginal benefit from hiring one more worker. When they are not equal. They choose the point where marginal benefit is greater than and closest to marginal cost. Marginal cost is 25 and marginal benefit is 30 when 2 employees are hired.
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