A local bakery operates in a perfectly competitive market and is evaluating whether to hire an additional baker. The bakery estimates that the marginal revenue product (MRP) of the new baker is $30 per hour, while the marginal factor cost (MFC) of hiring that baker is $25 per hour. What should the bakery do to maximize its profits?

To maximize its profits, the bakery should hire the additional baker because the marginal revenue product (MRP) is greater than the marginal factor cost (MFC). The MRP of $30 per hour means that the new baker can generate $30 in revenue for the bakery with each hour worked. Since the cost to hire the baker is only $25 per hour, the bakery stands to gain an extra $5 in profit for every hour the baker works. By hiring the baker, the bakery increases its overall productivity and revenue, leading to higher profits. In this case, the decision to hire is clear because the benefits outweigh the costs.