Question

Compute the Cost. Edward the entrepreneur takes 2 hours to cut a lawn and he cuts 1,000 lawns per year. He uses​ solar-powered equipment​ (truck and​ mower) that will last forever long dash —and could be sold at any time for​ $20,000. Edward could earn ​$ 12 per hour as a pedicurist. The interest rate is 10 percent.

a. Given his current output​ level, his marginal cost is ( ) (enter your response to the nearest​ dollar) and his average cost is (    )(enter your response to the nearest

​dollar).

b. Suppose he decides to reduce the number of lawns cut by​ half, to 500 per year. His new marginal cost is (    ) (enter your response to the nearest​ dollar) and his new average cost is (    ) (enter your response to the nearest dollar).

Answer 1

a) Given his current output level, compute his marginal cost $ 24 and average cost is $ 26

Explanation:

As Edward could earn ​$ 12 per hour as a pedicurist and it too 2 hours to cut a lawn so marginal cost is 12*2 = $24

Total cost = 12*2*1000 + 20000 =24000 + [20000*0.10]

= 24000 + 2000 = 26000 --{ as interest rate is 10%on 20,000]

Average cost = Total cost / Q = 26000/1000 = $26

b.Suppose he decides to reduce the number of lawns cut by half, to 500 per year.

His new marginal cost is $ 24 and his new average cost is $ 28

Explanation:

cost of 1 law is still same = 2*12 = $24 so new marginal cost is also $24

New Total cost = 12*2*500 + [20000*0.10] = 14000

New Average cost = 14000/500 = $28