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2 March, 09:29

A firm currently employs four workers in a sandwich shop, and produces sandwiches at a total cost per sandwich (ATC) of $3. The sandwiches sell for $5. If the marginal cost of hiring another worker to produce sandwiches is $5.50 per sandwich, then:

A. it will cost $5.50 to make another sandwich, which can only be sold for $5.

B. the firm will lose $0.50 per sandwich if it hires another worker.

C. the firm should not hire a fifth worker.

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Answers (1)
  1. 2 March, 13:01
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    all are correct A, B and C

    Explanation:

    The marginal cost hiring another worker and producing a sandwich = $5.50 per sandwich, which is higher than the marginal revenue.

    If the selling price per sandwich is $5 and the marginal cost per sandwich is $5.50, the firm will lose $0.50 for every sandwich that it sells.

    Therefore the firm would be losing money is they hire an extra worker.

    In order to maximize the profit, the marginal cost = selling price.
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