Use the following to answer question:
-(Table: Workers and Corn Output)Use Table: Workers and Corn Output.Laura is a price-taking farmer who produces corn.Assume that the wage rate for workers is $130 and the price per bushel of corn is $10.Suppose that Laura is employing 2 workers.If she adds the third worker,her profits will:
A)increase by $79.
B)decrease by $51.
C)decrease by $19.
D)increase by $80.

Question

Use the following to answer question: 
-(Table: Workers and Corn Output)Use Table: Workers and Corn Output.Laura is a price-taking farmer who produces corn.Assume that the wage rate for workers is $130 and the price per bushel of corn is $10.Suppose that Laura is employing 2 workers.If she adds the third worker,her profits will:
A)increase by $79. 
B)decrease by $51. 
C)decrease by $19. 
D)increase by $80.

Quizplus · Accepted Answer

To determine whether Laura should hire the third worker, we need to compare the additional cost of hiring him with the additional revenue that he will generate. The additional cost is the wage rate of $130, which is what Laura has to pay him. The additional revenue is the increase in corn output that he will produce. Looking at the table, we see that the third worker will produce an additional 20 bushels of corn, which she can sell for $10 each, yielding additional revenue of $200. Therefore, Laura's profits will increase by $200 - $130 = $70. However, since the question asks for the change in profits, we need to subtract her current profits (which we can calculate by multiplying her current output, 40 bushels, by the price of corn, $10): Current profits = 40 x $10 = $400. Therefore, if she hires the third worker, her new profits will be $470. The increase in profits is $470 - $400 = $70, which rounded up to the nearest dollar is $80, so the correct answer is D.

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