Answer the question on the basis of the following information: Harry owns a barb
ID: 1197709 • Letter: A
Question
Answer the question on the basis of the following information: Harry owns a barber shop and charges $6 per haircut. By hiring one barber at $10 per hour, the shop can provide 24 haircuts per eight-hour day. By hiring a second barber at the same wage rate, the shop can now provide a total of 42 haircuts per day.
Refer to the given information. Harry should:
hire the second barber because he will add $28 to profits.
hire the second barber because he will add $108 to profits.
not hire the second barber because he is less productive than the first barber.
not hire the second barber because he will diminish profits.
hire the second barber because he will add $28 to profits.
hire the second barber because he will add $108 to profits.
not hire the second barber because he is less productive than the first barber.
not hire the second barber because he will diminish profits.
Explanation / Answer
Answer: hire the second barber because he will add $28 to profits.
Explanation:
If one barber works for 8 hours a day, the total cost is $80 (i.e. $10 x 8). And the total revenue is $144 (i.e.24 x $6). So, the profit = TR - TC = $144 - $80 = $64.
If second barber is hired at same wage rate, the total cost will be $160 (i.e. $10 x 8 x 2). And the total revenue is $252 (i.e.42 x $6). So, the profit = TR - TC = $252 - $160 = $92.
Therefore, due to the hire of second barber profit increases by $28 ( $92 - $64)
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