Compute the Cost. Edward the entrepreneur takes two hours to cut a lawn, and he cuts 1,000 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 $12 per hour as a pedicurist.
The interest rate is 10 percent.
a. Given his current output level, compute his marginal cost and average cost of cutting lawns.
b. Suppose he decides to reduce the number of lawns cut by half, to 500 per year. Compute the new marginal cost and average cost.