The Bountiful Bakery is considering hiring another pastry chef.The bakery knows that the average product of its chefs currently is 15 dozen croissants per day.It also believes that the next chef hired will produce an extra 12 dozen croissants per day.A dozen croissants sell for $30.The bakery should hire another worker:
A) only if the new chef's marginal product is 12 dozen or more.
B) only if the new chef's daily wage is $450 or less.
C) only if the new chef's daily wage is $360 or less.
D) because the marginal product is below the average product.

Question

Quizplus · Accepted Answer

The bakery should hire another worker if the additional output produced per day is worth the cost of hiring the worker. The marginal product of the new chef is 12 dozen croissants per day, which equals $360 of additional revenue. Thus, the new chef's daily wage should be $360 or less for the bakery to benefit from hiring the worker. Choice A is incorrect because the marginal product only needs to be worth the cost of the worker, not necessarily greater than the average product. Choice B is incorrect because it does not take into account the additional revenue that the new chef would bring in. Choice D is incorrect because the fact that the marginal product is lower than the average product does not necessarily mean that the bakery should not hire another worker.

The Bountiful Bakery Is Considering Hiring Another Pastry Chef