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Lisa has a lawn-mowing business
Lisa has a lawn-mowing business. Lisa hires students at $40 a day to mow lawns. Lisa leases 5 lawn mowers for $200 a day. The table gives the daily output:
| Labor | Total product |
| 0 | 0 |
| 1 | 20 |
| 2 | 44 |
| 3 | 70 |
| 4 | 94 |
| 5 | 114 |
| 6 | 120 |
a. Construct the total variable cost and total cost schedules,
b. Construct the average fixed cost, average variable cost, and average total cost schedules,
c. Construct the marginal cost schedule.
Expert Solution
a) The details of variable and fixed cost are
- The wage rate is $40 per student and is a variable cost
- The cost for lawn mowers for $200 a day is a fixed cost
Total variable cost = wage rate per labor * number of labor
Total Cost = Total variable cost + Total Fixed cost
| Labor (a) | variable cost per labor (b) | Total Variable Cost (c=a*b) | Total Fixed cost (d) | Total Cost (c+d) |
|---|---|---|---|---|
| 0 | $40.00 | $0.00 | $200.00 | $200.00 |
| 1 | $40.00 | $40.00 | $200.00 | $240.00 |
| 2 | $40.00 | $80.00 | $200.00 | $280.00 |
| 3 | $40.00 | $120.00 | $200.00 | $320.00 |
| 4 | $40.00 | $160.00 | $200.00 | $360.00 |
| 5 | $40.00 | $200.00 | $200.00 | $400.00 |
| 6 | $40.00 | $240.00 | $200.00 | $440.00 |
b) The following formulas will be used to prepare the schedule
Average variable cost/ fixed cost / total cost at X = total variable cost / fixed cost / total cost at X / X
Where X is the total product quantity
| Total product | Average Variable Cost | Average Fixed cost | Average Total Cost |
|---|---|---|---|
| 0 | $0.00 | $200.00 | $200.00 |
| 20 | $2.00 | $10.00 | $12.00 |
| 44 | $1.82 | $4.55 | $6.36 |
| 70 | $1.71 | $2.86 | $4.57 |
| 94 | $1.70 | $2.13 | $3.83 |
| 114 | $1.75 | $1.75 | $3.51 |
| 120 | $2.00 | $1.67 | $3.67 |
c) The marginal cost schedule is prepared below.
| Total product | Marginal product (a) | Total Cost | Change in Total cost (b) | Marginal cost (b/a) |
|---|---|---|---|---|
| 0 | $200.00 | |||
| 20 | 20 | $240.00 | $40.00 | $2.00 |
| 44 | 24 | $280.00 | $40.00 | $1.67 |
| 70 | 26 | $320.00 | $40.00 | $1.54 |
| 94 | 24 | $360.00 | $40.00 | $1.67 |
| 114 | 20 | $400.00 | $40.00 | $2.00 |
| 120 | 6 | $440.00 | $40.00 | $6.67 |
Costs:
In accounting, the costs are booked and presented in their respective accounts head as cost of goods sold, operating expenses, non-operating expenses, administrative expenses, and selling expenses. In economics, the costs are presented as a variable, fixed, total, and marginal cost.
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