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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

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:

Total variable cost=Total costFixed cost (1)

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

Total variable cost=28030=250

The total variable cost is $250.

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

Average variable cost=Total variable costQuantity (2)

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

Average variable cost=25010=25

The average variable cost is $25

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