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16 March, 16:53

1) 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?

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  1. 16 March, 20:44
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    Short run $250

    Long run $280

    Explanation:

    Short-run:

    TR = PxQ = 27x10 = $270

    VC = TC - FC = 280 - 30 = $250

    Bob should continue his lawn-mowing service in the short run because his total revenue is higher than his variable cost.

    Long-run:

    TR = $270

    TC = $280

    Bob should therefore exit the market because his total revenue is lesser than his total cost.
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