Question

1. Terry’s Lawn Service rents five small push mowers and two large riding mowers to cut the lawns of neighborhood households. The marginal product of a small push mower is 3 lawns per day, and the marginal product of a large riding mower is 6 lawns per day. The rental price of a small push mower is $10 per day, whereas the rental price of a large riding mower is $25 per day.

1. Is Terry’s Lawn Service utilizing small push mowers and large riding mowers in a cost-minimizing manner?
2. Explain the marginal product?

Answer 1

(a) Marginal product of small push mower = 3 lawns

Rental price of small push mower = 10

=> (Marginal product of small push mower / Rental price of small push mower) = 3 / 10 = 0.3

Marginal product of large riding mower = 6 lawns

Rental price of large riding mower = 25

=> (marginal product of large riding mower / Rental price of large riding mower) = 6/25 = 0.24.

At cost minimization point following condition will holds true:

(Marginal product of small push mower / Rental price of small push mower) = (marginal product of large riding mower / Rental price of large riding mower).

Hence, currently the above condition does not hold.

It means,  Terry’s Lawn Service is not utilizing small push mowers and large riding mowers in a cost-minimizing manner.

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(b) Marginal product of an input is the change in the total output due to the change in that input by an unit.

For example, Marginal product of small push mower is 3 lawns. It means, increasing the small push mower by one unit will increase the lawns cut per day by 3.