Quanttiy of labor total product of labor
0 0
1 3
2 10
3 16
4 21
5 25
6 28
1. debbie owns a bakery and can hire workers to produce cakes selling in a competitive output market at $10 each. the table shows the relationship between the number of workers and the number of cakes produced. if debbie must pay each worker a competitive market wage of $40 per day, how many workers will she hire to maximize profit?

a) three

b) four

c) five

d) six

A). 3 Labors will produce 16 cakes which can be sold in $160 giving 25% profit margin which is the maximum profit.

Labors    cost       cakes       Sales       Profit      %

1           40              3    30-10       33%

2           80              10    100  20        20%

3           120      16     160  40        25%

4           160      21     210  50        24%

5           200      25     250  50        20%

6           240      28     280  40        14%

Explanation:

Please refer to the attached file for detailed calculation of profit margin.

Profit margin(Gross Profit/Sales) : is the ratio used to calculate to measure maximum profit.

Option A, 3 labors are delivering maximum efficiency in work and producing maximum number of cakes resulting in the highest profit margin.

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