Chapter 14, Problem 3PA

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

Chapter
Section

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Bob’s lawn-mowing service is a profit-maximizing, competitive firm. Bob mows lawns for $27 each. His total cost each day is$280, of which $30 is a fixed cost. He mows 10 lawns a day. What can you say about Bob’s short-run decision regarding shutdown and his long-run decision regarding exit? To determine The decision regarding the shutdown of production. Explanation The total variable cost can be calculated by using the following formula: TotalÂ variableÂ cost=TotalÂ costâˆ’FixedÂ cost (1) Substitute the value in equation (1) to calculate the total variable cost, TotalÂ variableÂ cost=280âˆ’30=250 The total variable cost is$250.

The average variable cost can be calculated by using the following formula:

AverageÂ variableÂ cost=TotalÂ variableÂ costQuantity (2)

Substitute the value in equation (1) to calculate the average variable cost,

AverageÂ variableÂ cost=25010=25

The average variable cost is \$25

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