Tutorial exercise 9.pdf - Tutorial exercise 9 Optimal...

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Tutorial exercise 9: Optimal output and shut-down condition Question 1 Suppose an airline’s fixed cost of serving a particular route market is $5000. The demand curve in this market is P(Q) = 100 0.2Q where Q stands for number of passengers. When a uniform price is charged, the marginal revenue will be MR(Q) = 100-0.4Q. The marginal cost of operating flights in the market is $50 per passenger and the total cost is C(Q) = 5000 + 50Q. a. How many passengers should be served to maximize profit from operating in this market?
1 b. At the optimal output level, how much will be the variable cost, total cost and profit (or

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