Gino's Pizza shop hires cooks in a competitive market.The raw material required to make each pizza costs $5.Daily output at Gino's Pizza varies with the number of workers hired,as shown in the table below: $$\begin{array} { c c }
\text { Number of workers } & \text { Pizzas/ Day } \
0 & 0 \
1 & 16 \
2 & 36 \
3 & 54 \
4 & 70 \
5 & 84 \
6 & 96
\end{array}$$
If the pizzas sell for $10/pie,and the competitive market wage is $80 per day,Gino will hire ____ workers and produce ____ pizzas per day.

Question

Gino's Pizza shop hires cooks in a competitive market.The raw material required to make each pizza costs $5.Daily output at Gino's Pizza varies with the number of workers hired,as shown in the table below: $$\begin{array} { c c } 
\text { Number of workers } & \text { Pizzas/ Day } \
0 & 0 \
1 & 16 \
2 & 36 \
3 & 54 \
4 & 70 \
5 & 84 \
6 & 96
\end{array}$$
If the pizzas sell for $10/pie,and the competitive market wage is $80 per day,Gino will hire ____ workers and produce ____ pizzas per day.

Quizplus · Accepted Answer

To maximize profit, Gino's Pizza should produce until the marginal revenue (MR) from selling one additional pizza is equal to the marginal cost (MC) of producing that pizza. In other words, Gino should continue to produce pizzas until MR=MC.
From the given data, we can calculate the marginal revenue as follows:
16 x 10 =$160 for 1 worker
(36-16) x 10 =$200 for 2 workers
(54-36) x 10 =$180 for 3 workers
(70-54) x 10 =$160 for 4 workers
(84-70) x 10 =$140 for 5 workers
(96-84) x 10 =$120 for 6 workers
Meanwhile, the marginal cost of producing one more pizza is $5, regardless of the number of workers hired.
Comparing MR and MC gives us the following table:
$$\begin{array} { c c c } 
\text { Workers } & \text { Pizzas/ Day } & \text { MR/MC } \
1 & 16 & 31.2\
2 & 36 & 39.2\
3 & 54 & 35.2\
4 & 70 & 31.2\
5 & 84 & 27.2\
6 & 96 & 23.2
\end{array}$$
As we can see, the highest MR/MC ratio is when 2 workers are hired, so Gino's Pizza should hire 2 workers and produce 36 pizzas per day. Therefore, the answer is (B) 2; 36.

Gino's Pizza Shop Hires Cooks in a Competitive Market If the Pizzas Sell for $10/pie,and the Competitive Market Wage