Assume a business makes and sells widgets. Giant Widgets is a sole proprietorship, so the owner's individual and business finances are merged. The owner is single, without dependents, and has a part-time job elsewhere which earns him $10,000 a year with $1000 withheld for federal income taxes

The following information is available for the business:

Gross income for the 1000 widgets sold last year for $100 each, equals $100,000. (Use this figure in filling out schedule C, part I.) Assume the firm has competition and is a price taker (i.e., perfect competition).

Wages for each of the two part-time workers (no benefits are paid for them), $20,000, for a total of $40,000.

Supplies in producing those 1000 units, $4000.

Rent $16,000

Insurance $1000

Advertising $1000

Repairs and maintenance on equipment $500

Allowable depreciation on equipment, $2000

Utilities, $500

Office expenses such as postage, $1000

License fees (assume this is a yearly payment to the county for the privilege of doing business there), $500

Legal and accounting services, $1500

III. Suppose the firm considers hiring 1 more worker at a cost of $20,000. Assume this would add 500 units to output production and, at the current price, add $50,000 to revenue. It would also add the following to existing production costs:

Supply cost for additional output $2000

Utilities (mainly electricity) $250

Renting an extra room $9000

Office expenses $750

Lease (not buy) a new machine $3000

Do not redo the tax forms; assume for this problem no tax consequences.

a) What is marginal cost?

b) Would it be beneficial for the firm to undertake this expansion? WHY OR WHY NOT?