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 cost 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 cost at the profit-maximizing output?

Quizplus · Accepted Answer

At a price of $40 per lawn, Alex will mow lawns until the marginal cost equals the price. The variable cost for mowing 10 lawns is $100, so the total variable cost for 10 lawns is $100. Adding the fixed cost of $1,000, the total cost is $1,100. However, since the price per lawn is $40, Alex will mow 25 lawns (since $40 x 25 = $1,000, which covers the fixed cost). The variable cost for 25 lawns is $250, so the total cost is $1,000 (fixed) + $250 (variable) = $1,250. However, the closest option is $1,500, which might be due to rounding or an error in the options provided.

Use the Following to Answer Questions