Question

In exhibit 7-15, if the market price of mowing lawns is $16 per lawn, then e-z-care will earn the biggest profit by mowing:

Answer 1

Answer:

7 lawns

Explanation:

Any firm will maximize its accounting profits at the price where average total cost = marginal costs, in this case the market price is higher, so that will enable EZ Care to make an economic profit besides an accounting profit, but the quantity supplied will not vary, it will still be 7 lawns per day.

Answer 2

Answer:

B. 8 lawns per day.

Explanation:

As seen in the graph below, The AVC and ATC curves intersect the MC curve at the minimum of the MC curve. The marginal cost curve intersects the AVC curve to the right of the minimum of the AVC curve. It also intersects the ATC curve to the right of the minimum of the ATC curve. At first, marginal cost decreases with additional output, but then it increases with additional output. The firm’s profit-maximizing level of output will occur where MR = MC (or at a level close to that point).

Therefore, from the graph; at $16 per lawn, the maximum profit = 8 lawns per day.