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Most of the cost of a new airplane is in the research and development and in building production facilities. By contrast, the marginal cost of producing another plane is relatively low.
a) You have been hired by Boeing to recommend pricing and marketing strategies for a new plane. On one graph: Draw a hypothetical Average Total Cost (ATC) curve, the Marginal Cost curve, and a Demand (MU) curve for the plane. (Hint: The point where Demand intersects MC should be below the ATC curve.)
b) Show the area of net profit (or loss) under perfect competition for planes as the difference between average total cost and the average revenue (or the price). (Note that Boeing’s profit is the number of phones sold times price minus ATC.) What will happen to the price of planes, to sales, and to profits when Airbus comes out with a new plane?? What happens to the industry and the number of companies under competitive conditions? Why?
Consider a monopolist whose total cost function is TC = 20 + 10Q + 0.3Q2 and whose marginal cost function is MC = 10 + 0.6Q. The demand function for the firms good is P = 160 - 0.5Q. The firm optimizes by producing the level of output that maximizes ..
In the short run, a firm cannot vary its capital, K = 2, but can vary its labor, L. It produces output q. Explain why the firm will or will not experience diminishing marginal returns to labor in the short run if its production function is
If the central bank (the Federal Reserve) keeps printing money and lowering the interest rates to get consumers buy and businesses to borrow money, then the economy will improve. Do you agree with the statement? Hint: Think about the short term and i..
If a company has a required WACC of 10% per year. it's stocks are expected to have a 16% rate of return. The capital structure of the company has to be 65% debt and 35% equity. the income tax rate of the company is 30%. What is the maximum annual cos..
Two dry cleaners are located on a street of length. The firms do not make the same profit, verbally describe why this is the case.
what effect would this change have on the wages in the two markets you illustrated in part (a)? what effect would the change have on the average wages of men and women?
Victor needs a new high voltage generator for his research. He would like to have the money saved for it by the end of 7 years. He estimates it will cost $13499. If the bank pays a nominal annual rate of 6% compounded monthly, how much should Victor ..
Suppose production function for burritos at Chipotle is Q =4k^1/2 L^1/2.They currently own 4 units of capital and are not able to change this during the short run. The rental rate of capital is $10 and the wage rate is $20. What is Chipotle's short r..
After your review of the United States Constitution, and in consideration of the controversy amongst Republican party Presidential nominees regarding the citizenship status of Senator Ted Cruz of Texas, is he indeed eligible to run for President of t..
(a) Solve the following problem graphically:
A large project requires an investment of $200 million. The construction will take 3 years: $30 million will be spent during the first year, $100 million during the second year, and $70 million during the third year of construction. The total equival..
You own a rock climbing gym. Ryan is one of your customers. Ryan receives utility from rock climbing and pizza (Ryan exhausts his income in each period on the two goods). Ryan has $100 of income. At a price of $20, Ryan buys 0 sessions. What is the i..
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