Charles owns an ice cream shop. He wants to know how long it will be profitable to keep his shop open. His revenue charts are below. Charles knows he has to pay his employees $8 every hour and has other operating expenses that add up to $7 each hour. If Charles follows the principle of marginal returns, how long should he keep his shop open?

Hours Open

Total revenue (total benefit)

$

Marginal benefit

(Change in benefit)

$

Marginal Cost

(Change in cost)

$

Net Marginal Utility

(benefit -cost)

$

0

$0

--

--

--

1

$50

2

$90

3

$120

4

$140

5

$155

6

$165

1- What is marginal revenue from hour 0 to hour 1? What is the marginal revenue from hour 2 - 3? Why are they different?

2- What is the marginal cost each hour?

3- According to the law of diminishing marginal returns, how many hours should Charles keep his store open? Why?