Suppose Fred produces 500 litres of milk every day with 10 workers. The price of milk is $12 per litre, and each worker is paid $550 daily.

If the marginal product of the last worker employed is 40 litres of milk, explain whether Fred is maximizing his profit. If not, can Fred increase his profit by employing more or fewer workers?

If Fred buys more dairy cattles, how will it affect his demand for labor? Explain with a diagram.