Marie Johnston is a manager at an electronics store and has to decide how many workers to hire. If she hires one worker, her revenue is $800 per day. If she hires another worker, she can make another $600 per day. The marginal benefit of hiring another worker decreases by $200 with each additional hire. Assuming that workers are paid $20 per hour and work eight hours, how many employees should Marie hire, and what will be her total cost for labor?
A)She will hire two workers at a total cost of $160.
B)She will hire three workers at a total cost of $480.
C)She will hire four workers at a total cost of $640.
D)She will hire five workers at a total cost of $2000.

Question

Quizplus · Accepted Answer

Marie should continue hiring workers as long as the marginal benefit of hiring an additional worker is greater than or equal to the marginal cost of hiring that worker. The marginal cost for each worker is $20/hour * 8 hours = $160. The marginal benefit for the first worker is $800, for the second is $600, for the third is $400 ($600 - $200), and for the fourth is $200 ($400 - $200). Hiring a fifth worker would add no additional revenue since the marginal benefit decreases by $200 with each hire, making it $0 for the fifth worker, which is less than the marginal cost of $160. Therefore, she should hire four workers, with the total cost being 4 workers * $160/worker = $640.

Marie Johnston Is a Manager at an Electronics Store and Has