Table 10-3
Hotspur Incorporated, a manufacturer of microwave ovens, is a price taker in its input and output markets. The firm hires labour at a constant wage rate of $800 per week and sells microwave ovens at a constant price of $80. Table 10-3 shows the relationship between the quantity of labour it hires and the quantity of microwave ovens it produces.
-Refer to Table 10-3.What is the amount of profit added as a result of hiring the 4th worker?
A) $7200
B) $1200
C) $800
D) $400

Question

Table 10-3
  Hotspur Incorporated, a manufacturer of microwave ovens, is a price taker in its input and output markets. The firm hires labour at a constant wage rate of $800 per week and sells microwave ovens at a constant price of $80. Table 10-3 shows the relationship between the quantity of labour it hires and the quantity of microwave ovens it produces.
-Refer to Table 10-3.What is the amount of profit added as a result of hiring the 4th worker?
A) $7200 
B) $1200 
C) $800 
D) $400

Quizplus · Accepted Answer

To find the amount of profit added as a result of hiring the 4th worker, we need to compare the total revenue from producing with three workers to the total revenue from producing with four workers.

The total revenue from producing with three workers is:

3 workers x 40 microwave ovens per worker x $80 per oven = $9,600

The total revenue from producing with four workers is:

4 workers x 50 microwave ovens per worker x $80 per oven = $16,000

The additional revenue from hiring the 4th worker is:

$16,000 - $9,600 = $6,400

However, we also need to consider the additional cost of hiring the 4th worker, which is:

1 worker x $800 per week = $800

Since the additional revenue of $6,400 is greater than the additional cost of $800, the firm will earn a profit of:

$6,400 - $800 = $5,600

Therefore, the amount of profit added as a result of hiring the 4th worker is $5,600.

Table 10-3 Hotspur Incorporated, a Manufacturer of Microwave Ovens, Is