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8 April, 07:26

Benny employs people to sell candy bars at intersections. Assume that Benny can obtain candy bars to sell for no cost. The marginal product of the last worker Benny hired is 20 candy bars per hour. Benny pays $7 per worker per hour and sells the candy bars for $1 each. If the price of candy bars rises to $2, then the:

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  1. 8 April, 07:59
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    Benny will hire more candy sellers.

    Explanation:

    Benny is currently making a $13 per hour profit for every candy seller that he hires: $20 (marginal product) - $7 (salary) = $13

    If the price of candy bars increases to $2 and the quantity demanded remains unchanged, Benny will be making a $33 profit for every candy seller: $40 (marginal product) - $7 (salary) = $33

    So Benny will be highly motivated to hire more candy sellers in order to keep increasing his profit.
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