Amanda owns a small bakery in the perfectly competitive pastry industry. She is considering whether to hire an additional pastry chef. The wage rate for pastry chefs is $1,000 per week, the marginal product of an additional pastry chef is 1,000 pastries per week, and the unit price of pastries is $1.25. Amanda should:

Question

Quizplus · Accepted Answer

To determine whether Amanda should hire an additional pastry chef, we need to compare the additional revenue generated by the extra pastries produced to the cost of hiring the pastry chef.

Each additional pastry chef produces 1000 pastries per week, which at a price of $1.25 per pastry, generates an additional revenue of $1250 per week.

The cost of hiring a pastry chef is $1000 per week, so the net gain from hiring an additional pastry chef would be $250 per week ($1250 - $1000).

Since there is a positive net gain, Amanda should hire the additional pastry chef.

Amanda Owns a Small Bakery in the Perfectly Competitive Pastry