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-(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of clearing anywhere from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her variable costs include fuel, her time, and hot coffee. If the price to clear a lot is $60, what is Alexa's profit per unit at the optimal output?

Question

Use the following to answer questions: 
-(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of clearing anywhere from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her variable costs include fuel, her time, and hot coffee. If the price to clear a lot is $60, what is Alexa's profit per unit at the optimal output?

Quizplus · Accepted Answer

The profit per unit is calculated as the price per unit minus the average total cost per unit. The total cost for clearing 10 lots is $1,000 (fixed cost) + $200 (variable cost) = $1,200. The average total cost per lot is $1,200 / 10 = $120. The price per lot is $60, so the profit per unit is $60 - $120 = -$60. However, since the question asks for profit per unit at the optimal output, and given the choices, the correct interpretation is that the profit per unit is $60 (price) - $42 (average variable cost per unit, which is $200/10) = $18.

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