Question

Akua’s Paint Supply charges $15 per gallon of paint. Akua started with three employees, who together produced 40 gallons of paint a day. He recently hired a fourth worker, and production increased to 48 gallons of paint a day. If Akua pays each worker $50/day, what is his marginal profit for the fourth employee? Ignore the added cost of raw materials.

Answer 1

$70

Step-by-step explanation:

Total revenue from three employees:

= No. of gallons of paint produced × Selling price per gallon

= 40 × $15

= $600

Total revenue from four employees:

= No. of gallons of paint produced × Selling price per gallon

= 48 × $15

= $720

Total revenue created by 4th worker:

= Total revenue from four employees - Total revenue from three employees

= $720 - $600

= $120

Cost of hiring 4th worker = $50 per day

Therefore,

Marginal profit for the fourth employee:

= Total revenue created by 4th worker - Cost of hiring 4th worker

= $120 - $50

= $70