The 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 ______.

Question

The 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 ______.

Quizplus · Accepted Answer

The marginal benefit of the 2^nd employee ($12,426) exceeds its marginal cost ($9,000), but the marginal benefit of the 3^rd 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 Table Below Shows How Total Donations, Average Donations, Total