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-(Table: Variable Costs for Lawns)Use Table: Variable Costs for Lawns.During the summer,Alex runs a lawn-mowing service,and lawn-mowing is a perfectly competitive industry.Assume that costs are constant in each interval;so,for example,the marginal cost of mowing each of the lawns from 1 through 10 is $10.Also assume that he can only mow the quantities of lawn given in the table (and not numbers in between).His only fixed cost is $1,000 for the mower.His variable costs include fuel,his time,and mower parts.If the price for mowing a lawn is $70,how much is Alex's total revenue at the profit-maximizing output?

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Use the following to answer question: 
-(Table: Variable Costs for Lawns)Use Table: Variable Costs for Lawns.During the summer,Alex runs a lawn-mowing service,and lawn-mowing is a perfectly competitive industry.Assume that costs are constant in each interval;so,for example,the marginal cost of mowing each of the lawns from 1 through 10 is $10.Also assume that he can only mow the quantities of lawn given in the table (and not numbers in between).His only fixed cost is $1,000 for the mower.His variable costs include fuel,his time,and mower parts.If the price for mowing a lawn is $70,how much is Alex's total revenue at the profit-maximizing output?

Quizplus · Accepted Answer

To maximize profits, Alex should continue producing until the marginal cost equals the price, as long as the price is above the marginal cost. Since the price for mowing a lawn is $70, and the table (which is not shown) presumably indicates that the marginal cost for each lawn up to a certain point is below $70, Alex will mow as many lawns as he can until the marginal cost equals or exceeds $70. Without the specific details of the marginal cost at each quantity, we assume he mows the maximum number of lawns where the marginal cost is below $70. If the profit-maximizing output is 50 lawns (for example), at $70 each, his total revenue would be 50 lawns * $70 = $3,500. This answer assumes the reader understands the concept of profit maximization in perfectly competitive markets, where firms produce up to the point where price equals marginal cost.

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