Question
In: Economics
Bob’s lawn-mowing service is a profit-maximizing, competitive firm. Bob mows lawns for $30 each. His total...
Bob’s lawn-mowing service is a profit-maximizing, competitive firm. Bob mows lawns for $30 each. His total cost each day is $310, of which $40 is fixed and sunk for the next 3 months. He mows 10 lawns a day. Marginal cost is always the same, no matter how many lawns are mowed. After 3 months, if Bob wants to keep mowing lawns, he needs to renew the $40 a day fixed cost obligation.
+Compute marginal cost of mowing one lawn
+Compute Bob’s daily profits in the short term (for this question let’s assume the short term is any time period shorter than 3 months). Use the economic approach to calculate profits, not the accounting one.
+Determine if Bob should stay in business during the next 3 months.
+Compute Bob’s daily profits in the long term and determine whether he should stay in business after 3 months.
Solutions
Expert Solution
Bob’s lawn-mowing service is a profit-maximizing, competitive firm. Bob mows lawns for $30 each. His total cost each day is $310, of which $40 is fixed and sunk for the next 3 months. He mows 10 lawns a day. Marginal cost is always the same, no matter how many lawns are mowed. After 3 months, if Bob wants to keep mowing lawns, he needs to renew the $40 a day fixed cost obligation.
. Now in long term after
3 months , TR = 270 Then $40 as fixed (sunk) cost need to be
incurred so gt will in air losses.
Thus exist in long run.
Rahul Sunny answered 2 years agoRelated Solutions
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