The accompanying table below shows how total donations, average donations, total labor costs and average labor costs vary depending on the number of employees State U hires for its fundraising activities.
The Chair of the Economics Department at State U says that fundraising employees should be hired as long as their marginal benefit exceeds their marginal cost. If the University follows this advice, then ________ employee(s)will hired, and the net benefit (total donations minus total labor costs)will be ________.
A)1; $22,000
B)2; $25,426
C)3; $25,426
D)2; $3,476

Question

The accompanying table below shows how total donations, average donations, total labor costs and average labor costs vary depending on the number of employees State U hires for its fundraising activities.    
The Chair of the Economics Department at State U says that fundraising employees should be hired as long as their marginal benefit exceeds their marginal cost. If the University follows this advice, then ________ employee(s)will hired, and the net benefit (total donations minus total labor costs)will be ________. 
A)1; $22,000 
B)2; $25,426 
C)3; $25,426 
D)2; $3,476

Quizplus · Accepted Answer

The marginal benefit of the 2ⁿᵈ employee ($12,426)exceeds its marginal cost ($9,000), but the marginal benefit of the 3ʳᵈ employee ($9,537)is less than its marginal cost ($10,000). Thus, the University should hire 2 employees, and the net benefit will be $25,426 (= $42,426 - 9,000).

The Accompanying Table Below Shows How Total Donations, Average Donations