**Text Transcription:****Charlie's Lawn-Mowing Service Analysis**Charlie's lawn-mowing service is a profit-maximizing, competitive firm. Bob mows lawns for $27 each. His total cost each day is $280, of which $30 is a fixed cost. He mows 10 lawns a day. What can you say about Charlie's short-run decision regarding shutdown and his long-run decision regarding exit?**Description:**The text presents a scenario involving Charlie's lawn-mowing service. Here's a breakdown of the provided information:- **Service Charge per Lawn:** $27- **Daily Total Cost:** $280 - **Fixed Cost:** $30- **Lawns Mowed per Day:** 10### Analysis:**Short-Run Decision (Shutdown):**In the short run, a firm should continue operating if its revenue covers its variable costs, even if it is not covering all of its fixed costs. Here's the relevant calculation:- **Total Revenue per Day:** $27 (charge per lawn) * 10 (lawns per day) = $270- **Variable Cost per Day:** Total Cost ($280) - Fixed Cost ($30) = $250Since the revenue ($270) exceeds the variable costs ($250), Charlie should continue operating in the short run to reduce losses.**Long-Run Decision (Exit):**In the long run, a firm should exit the market if it cannot cover its total costs. Here's how we analyze this:- **Daily Total Cost:** $280- **Total Revenue per Day:** $270Since the total revenue ($270) is less than the total cost ($280), Charlie is not able to cover the total cost in the long run. Therefore, in the long run, Charlie should consider exiting the market if conditions do not improve.**Conclusion:**- **Short-Run Decision:** Continue operating (as long as revenue covers variable costs)- **Long-Run Decision:** Consider exiting (if total revenue remains insufficient to cover total costs)

In perfect competition market firms are price taker . They have to accept the price determined by…

Charlies's lawn-mowing service is a profit-maximizing.competitive firm. Bob mous lawns for $27 each. His total cost each day is $280, of which $30 is a fixed cost. He mows 10 lawns a day. What can you say about Charlies's short-run decision regarding shutdown and his long-run decision regarding exit?

Charlies's lawn-mowing service is a profit-maximizing.competitive firm. Bob mous lawns for $27 each. His total cost each day is $280, of which $30 is a fixed cost. He mows 10 lawns a day. What can you say about Charlies's short-run decision regarding shutdown and his long-run decision regarding exit?

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Firms In Competitive Markets

Section: Chapter Questions

Problem 2PA

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