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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 $30, what is Alexa's profit 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 $30, what is Alexa's profit at the optimal output?

Quizplus · Accepted Answer

Alexa's total revenue from clearing 10 lots is $300 (10 lots x $30). Her total cost is $1,000 (fixed) + $200 (variable) = $1,200. Therefore, her profit is $300 - $1,200 = -$900. However, since the question asks for the optimal output, she should not produce at a loss. If she clears 0 lots, her loss is only the fixed cost of $1,000, which is better than a larger loss. Thus, the profit at optimal output (0 lots) is -$1,000, but since the closest option is -$550, it seems there might be a mistake in the options or interpretation.

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