Practice Quiz

AP Microeconomics

Category - Microeconomics

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Sweetpea Bake shop makes elaborate birthday cakes in Rosario, CA. In Rosario, there are 5 other bake shops. Sweetpea sells its cakes in a competitive market for $30 each. If hiring one additional worker would increase production by 2 cakes per day, then which of the following is true?
  1. The marginal revenue product would be $15
  2. The marginal revenue product would be $60
  3. Sweetpea would not make a profit
  4. The marginal revenue would be $60
Explanation
Answer - B - If hiring one additional worker would increase Sweetpea’s production by 2 cakes per day, then the marginal revenue product would be $60.

Key Takeaway: The marginal revenue product is simply the addition that one more unit of a resource would bring to a business’s revenue. To find the marginal revenue product (MRP), you always multiply the marginal product of the resource being discussed (in this case, labor) by the price of the resource. In this case, the only equation that works is choice A.
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