Table 1-3

Santiago runs a comic book store in the town of East Arbor. He is debating whether he should extend his hours of operation. Santiago figures that his sales revenue will depend on the number of extra hours the store is open as shown in the table above. He would have to hire a worker for those extra hours at a wage rate of $18 per hour.
-Refer to Table 1-3.Using marginal analysis, by how many hours should Santiago extend his store's hours of operations?
A)2 hours
B)3 hours
C)4 hours
D)5 hours
E)6 hours

Question

Table 1-3
  
Santiago runs a comic book store in the town of East Arbor. He is debating whether he should extend his hours of operation. Santiago figures that his sales revenue will depend on the number of extra hours the store is open as shown in the table above. He would have to hire a worker for those extra hours at a wage rate of $18 per hour.
-Refer to Table 1-3.Using marginal analysis, by how many hours should Santiago extend his store's hours of operations?
A)2 hours 
B)3 hours 
C)4 hours 
D)5 hours 
E)6 hours

Quizplus · Accepted Answer

To find the optimal number of hours Santiago should extend his store's operations, we need to calculate the marginal benefit and marginal cost for each additional hour.

From the table, we see that the marginal benefit of extending operations by 1 hour is as follows:

- Extending from 0 to 1 hour increases sales revenue by $200 
- Extending from 1 to 2 hours increases sales revenue by $300 
- Extending from 2 to 3 hours increases sales revenue by $350 
- Extending from 3 to 4 hours increases sales revenue by $375 
- Extending from 4 to 5 hours increases sales revenue by $360 
- Extending from 5 to 6 hours increases sales revenue by $330

Now, let's calculate the marginal cost of each additional hour:

- The wage rate is $18 per hour, so the marginal cost is constant at $18 per hour.

To find the optimal number of hours, we want to choose the point where the marginal benefit equals the marginal cost.

From the table, we see that the marginal benefit of extending operations by 4 hours is $375, which exceeds the marginal cost of $72 ($18 per hour * 4 hours). Therefore, Santiago should extend his store's operations by 4 hours to maximize his profits.

Table 1-3 Santiago Runs a Comic Book Store in the Town of Store