What is the price and quantity at Jim’s shut down point? Jim operates a lawn mow

Question

What is the price and quantity at Jim’s shut down point?

Jim operates a lawn mowing business in a highly competitive suburb. There are many other awn mowing businesses close to his area. Assume there is no difference in the quality of service offered by each business. We may conclude that Jim operates in a perfectly competitive market and is therefore a price taker. Jim's main variable cost is the petrol required to run his lawn mower and transport his equipment between job sites Additionally, he leases his equipment at a fixed cost of $10 per day. The market price for awn mowing is $8 per lawn. The following table shows the quantity of lawns mowed per day (O) and the corresponding total variable costs (TVC). i. Complete the remaining columns of the table (Round all values to the nearest integer): IVC TFC TC AVC ATC MC TR MR (-P) 4 12 24 40 60 4 marks]

Explanation / Answer

Working notes:

(a) TR = P x Q

(b) TFC = $10

(c) TC = TFC + TVC

(d) AVC = TVC/Q

(e) ATC = TC/Q

(f) MC = Change in TC / Change in Q

(g) MR = P = $8

Shut-down point is equal to Price where Price = AVC, which holds true when P = AVC = $8 and Q = 3 units.

Q TVC TFC TC AVC ATC MC TR MR = P 0 0 10 10 0 8 1 4 10 14 4 14 4 8 8 2 12 10 22 6 11 8 16 8 3 24 10 34 8 11.33 12 24 8 4 40 10 50 10 12.5 16 32 8 5 60 10 70 12 14 20 40 8

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