Harry's Barber Shop Profit Analysis

What is the most profitable option for Harry regarding hiring a second barber?

A. Not hire the second barber because he is as productive but no more than the first barber.

B. Not hire the second barber because he will diminish profits.

C. Hire the second barber because he will add $160 to profits.

D. Hire the second barber because he will add $144 to profits.

Answer:

The correct option is: D. Hire the second barber because he will add $144 to profits.

Harry owns a barber shop and charges $8 per haircut. By hiring one barber at $20 per hour, the shop can provide 24 haircuts per eight-hour day. By hiring a second barber at the same wage rate, the shop can now provide a total of 42 haircuts per day.

To find the profit by hiring a second barber, let's calculate the daily profit:

Profit by the first barber: 24 haircuts/day × $8/haircut = $192/day

Profit by hiring the second barber: 42 haircuts/day × $8/haircut = $336/day

Wage rate of both barbers = $20/hour

One barber is already working for 8 hours and providing 24 haircuts. So, 8 hours of work produces 24 haircuts, and then we can say 1 hour of work produces 3 haircuts.

The time taken by the first barber = 24/3 = 8 hours

Using the wage rate, we can calculate that $8/haircut = $20/hour × 1 hour/3 haircuts = $6.67/haircut.

Calculation:

Total earnings from the second barber = $336/day - $192/day = $144/day

The time taken by the second barber = (18 haircuts × $6.67/haircut) / $20/hour = 6 hours/day

Total time with the second barber = 8 hours/day + 6 hours/day = 14 hours/day

Therefore, Harry should hire the second barber because he will add $144 to profits. Hence, the correct option is: D. Hire the second barber because he will add $144 to profits.