As the owner of a small sandwich shop, you have recently seen an increase in sal

Question

As the owner of a small sandwich shop, you have recently seen an increase in sales that your employees have struggled to manage. They ask that you consider hiring additional workers for the lunch shift, but you are concerned that it may cut into your profit. Using the table below, compute the marginal profit of hiring additional workers Quantity of labor (workers) Number of sandwiches Marginal Product Price of Sandwiches Value of Marginal Product Wage Marginal Profit 1 80 $5 $20 2 120 $5 $20 3 130 $5 $20 4 125 $5 $20 If the shop currently has only two employees, the owner should a. not hire anyone else. b. lay off one employee. c. hire one more employee. d. hire two more employees.

Explanation / Answer

ANS =C

Marginal product                      VMP                       Total revenue               MR               MC                 Marg. profit

-                                                                                 400                            -                   

40                                             80                             600                            200                20                       180

10                                             50                             650                             50                 20                         30

-5                                                                               625                             -25                20                         -5

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