Cindy is a baker and runs a large cupcake shop. She has...

Cindy is a baker and runs a large cupcake shop. She has already hired 11 employees and is thinking of hiring a 12 th. Cindy estimates that a 12 th worker would cost her $\$ 100$ per day in wages and benefits while increasing her total revenue from $\$ 2,600$ per day to $\$ 2,750$ per day. Should Cindy hire a 12 th worker? a. Yes. b. No. c. You need more information to figure this out.

Cindy is a baker and runs a large cupcake shop. She has already hired 11 employees and is thinking of hiring a 12 th. Cindy estimates that a 12 th worker would cost her $\$ 100$ per day in wages and benefits while increasing her total revenue from $\$ 2,600$ per day to $\$ 2,750$ per day. Should Cindy hire a 12 th worker?
a. Yes.
b. No.
c. You need more information to figure this out.

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Key Concepts

Profit Maximization

Profit maximization is the objective of increasing the overall profitability of a business by ensuring that every incremental change, such as hiring an extra worker, adds more to revenue than it costs in expenses. By evaluating incremental gains and ensuring they are positive, a firm can effectively achieve higher net profits over time.

Marginal Analysis

Marginal analysis is a method used in economics to examine the additional benefits and costs associated with a decision. It involves comparing the incremental increase in revenue from an action against the incremental increase in cost to determine if the action will be profitable overall.

Marginal Cost vs. Marginal Revenue

Marginal cost is the cost incurred from producing one additional unit or hiring one more worker, while marginal revenue is the extra income generated by that additional unit or worker. The decision to expand production or workforce hinges on whether the marginal revenue exceeds the marginal cost, leading to increased profitability.

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