Question 3 Dylan's Bakery is the only bakery in a small remote town, and Dylan's Bakery is the only employer of bakers in the area. The graph below shows the market for bakers with the marginal factor (resource) cost curve, the labor supply curve, and the marginal revenue product curve. 40 Marginal Factor Cost Wage Rate (5) Supply 22 20 16 13 10 Marginal Revenue Product 4 0 30 45 60 80 100 120 135 150 180 200 160 Quantity of Bakers (a) If the wage rate is $13, state whether there will be a shortage or a surplus of bakers and calculate its size. Show your work. (b) Identify the profit-maximizing number of bakers that Dylan's Bakery will hire. Explain using the labeling on the graph. (c) Identify the profit-maximizing wage rate that Dylan's Bakery will pay its bakers. Explain using the labeling on the graph. (d) If the marginal product of bakers increases, what will happen to the quantity of output produced by Dylan's Bakery? Explain. (e) Assume instead that Dylan's Bakery uses both labor and capital in its production of baked goods. The marginal product of the last unit of labor hired is 16 baked goods per hour and the marginal product of the last unit of capital rented is 50 baked goods per hour; the hourly wage rate for labor is $8 and the hourly rental price for capital is $5. To minimize the cost of producing its current level of output, should Dylan's Bakery rent more capital, less capital, or the same amount of capital? Explain using marginal analysis.