1)Alexandria has her own lawn service. It takes her two hours to cut a lawn and she cuts 1,000 lawns per year. She uses solar-powered equipment (truck and mower) that will last forever - and can be sold at any time for $30,000. Alexandria could earn $12 per hour as a swim instructor. The interest rate is 10 percent.
- Given her current level of output, compute her marginal cost and average cost of cutting lawns.
- Suppose she decrease the number of lawns cut to 500 lawns per year. Now compute her marginal cost and average cost of cutting lawns.
2) Do you agree or disagree with the following statement: "If marginal cost is rising with increasing output, average cost must also be rising." Explain you reasoning.
3) If the marginal product of labor for a firm decreases as more workers are hired, we know that
A all workers are paid the same wage.
B the marginal cost of producing output is decreasing.
C the gains from specialization are exhausted.
D the marginal cost of producing output is constant.
E there are still gains from specialization left to be exploited.