Economics-Principles-09-ID

Alex owns a small bakery. She currently employs two bakers and produces 100 loaves of bread a day. She decides to hire a third baker, which allows her to produce 150 loaves of bread a day. The cost of hiring the third baker is less than the revenue generated by the extra 50 loaves. According to marginal analysis, Alex would be advised to hire the third baker because ____________.

• her total revenue will increase, and higher revenue always leads to higher profit
• the marginal benefit of the third baker exceeds the marginal cost, increasing her total profit
• the average cost per loaf will be at its absolute minimum, which is the only way to maximize efficiency
• hiring more staff increases the firm's total market share compared to the rival bakery down the street