Consider the owners of Cutitforme, a small lawn?mowing service.They can use one of two methods to mow

lawns. Method 1 is to purchase a tractor that costs $200 a yearto own and then spend $1 (for labor and gas)

for every acre of grass cut. Method 2 is to spend $40 on a usedpush mower that will last one year and then

spend $5 (for labor) for every acre of grass cut

a) The total cost functions for the two methods can be writtenas:

Method 1: C = 200+q

Method 2: C= 40 + 5q

where q represent the number of acres of grass cut peryear. Briefly explain why this is correct.

b) Write down the average total cost function and find themarginal cost for each of the two methods.

Explain.

c) Assume that the tractor and the push mower have no resalevalue at the end of the year.

i) If the firm expects q = 20, which method should thefirm use? Show work.

ii) If the firm expects q = 60, which method should thefirm use? Show work.

iii) What is the smallest number of acres of grass cut per yearfor which the owners should buy the

tractor? Show work.

d) What is the minimum efficient scale (MES) if the firmpurchases the tractor? Explain your answer. What

does this imply for how many acres of grass the Cutitformecompany would like to cut if it could charge $6

per acre to all of it customers?

Answer rating: 100% (QA)

a The total cost functions for Method 1 and Method 2 are given as Method 1 C 200 q Method 2 C 40 5q ... View the full answer