Question

A consultant hired by the company you work for must deal with the theft of merchandise at the company. His job is to make recommendations to the problem, as part of his research he presents a table that follows based on the alleged thefts of merchandise estimated at $ 400 thousand a year and a salary for the guards of W = $ 25 per hour

# of security guards	Cost Merchandise Stolen	Marginal Benefit	Total Variable Cost	Marginal Cost
0	400
1	300
2	250
3	225
4	205

Will the decision to hire that number of guards be the best?
How much would the company be willing to pay the first security guard?

Answer 1

Marginal benefit of each security guard can be calculated as the fall in the value of merchantability stolen.

Guard: 1 , Marginal benefit: 300-400 = 100

Guard: 2 , Marginal benefit: 250-300 = 50

Guard: 3 , Marginal benefit: 225-250 = 25

Guard: 4 , Marginal benefit: 205-225 = 20

A) Yes.

Guards will be hired till the point the wage rate equals marginal benefit

This means, at the optimal point 3 guards would be hired.

B) The company would be willing to pay no more than $100 for the first security guard, which equals the marginal benefit from hiring them.