Compute the Cost Edward the entrepreneur takes two hours to

Compute the Cost. Edward the entrepreneur takes two hours to cut a lawn, and he cuts 100 lawns per year. He uses solar-powered equipment (truck and mower) that will last forever—and can be sold at any time for $20,000. Edward could earn $20 per hour as a pedicurist. The interest rate is 10 percent.

a. Given his current output level, compute his marginal cost $ ??? and average cost is $ ??

Solution

Marginal cost = (2 hours to cut a lawn × $20 per hour)

                        = (2 × $20)

                        = $40

Average cost = (total cost) / (Number of units)

                      = {(100 lawns × $40) + ($20,000 × 0.10)} / 100

                      = $6,000 / 100

                      = $60