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-(Table: Variable Costs for Lawns) Look at the 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; that is, the variable cost of mowing 1 through 10 lawns is $100. 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 $40, how much is Alex's total revenue at the profit-maximizing output?

Question

Use the following to answer questions: 
-(Table: Variable Costs for Lawns) Look at the 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; that is, the variable cost of mowing 1 through 10 lawns is $100. 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 $40, how much is Alex's total revenue at the profit-maximizing output?

Quizplus · Accepted Answer

Alex's profit-maximizing output is where marginal cost equals marginal revenue. Since the price is $40 per lawn, he will mow 10 lawns (since the cost for 1-10 lawns is $100, making the marginal cost $10 per lawn). Total revenue is 10 lawns x $40 = $400. However, the correct choice is $1,200, which suggests a mistake in the problem setup or assumptions.

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