Bob\'s lawn mowing service is a profit-maximizing competitive firm. Bob mows law
ID: 1222129 • Letter: B
Question
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.
1) Which of the following is true in the short run?
A)Bob is a loss and should shutdown
B) Bob is making a profit and should shutdown
C)Bob is making a profit and should operate
D) Bob is making a loss and should operate
2) What is Bob's average total cost?
A) $25 B) $30 C) $28 D) $27 E) $3
3) What is Bob's profit?
A) -$10 B) $10 C) $30 D) -$20
4) What is Bob's average variable cost?
A) $28 B) $3 C) $30 D) $25 E) $27
Explanation / Answer
1)Given that Bob's total earnings is 27*10=270
and total cost =280
Total variable cost =280-30=250
Thus Bob is making a loss and should operate as the revenue is greater than the variable cost.
2)Bob's average total cost is 280/10=28
3)Bob's Profit is total revenue-total cost=270-280=-10
4)Bob's average variable cost=250/10=25$(D)