Question

Suppose you are able to mow lawns at $12 per hour. The only cost to you is the opportunity cost of your time. For the first three hours, the opportunity cost of your time is $9 per hour. But after three hours, the opportunity cost of your time rises to $15 per hour because of other commitments.

Draw the marginal cost to you of mowing lawns. On that diagram, draw in the price you receive for mowing loans, indicate for how long you will mow lawns, and graphically indicate the area of your producer surplus in addition to calculating the magnitude of your producer surplus.

Answer 1

As a lawn mower, I can earn $12 per hour without incurring any direct costs. However, my opportunity cost of time varies. For the first three hours, I could have earned $9 per hour doing other activities. Thereafter, my opportunity cost increases to $15 per hour due to other commitments. As such, my total earnings from lawn mowing depends on the number of hours I work, and I should prioritize lawn mowing in the first three hours to maximize my earnings.