In 2018, Amy opened a new bread-making store. She initially had one

worker and by the end of the year had a total of 3 workers. By the

end of the year, her store had produced 150,000 loaves of bread and

sold each at $1.50. She paid $22,000 in rent for the store, paid

$1,700 for insurance, $50,000 on flour and other bread making

ingredients; paid $12,000 for utilities; and paid total wages of

$60,000 for her 3 employees. She incurred interest payments of

$2,500 on money borrowed from the Renewal Bank. The depreciation

on equipment for that year was $8,000. Amy tried to borrow $100,000

from the Survival Bank at an annual interest rate of 5% but was

denied by the bank. Amy could have earned a wage of $30,000 if she

had been employed elsewhere.

a) Calculate the accounting profit and economic profit for the bread-making

store. 

b) Assuming employing 4 workers will enable Amys store to produce

240,000 loaves of bread, what will be the marginal product and average

product at this level of employment? Is Amys store experiencing

diminishing marginal returns? Explain.