Since the total revenue of the airline is $26,000 for each day (the 80 passengers for
the night flight plus the 50 passengers in the afternoon flight, each paying $200 for
a oneway ticket), it pays for the airline to remain in business in the short run even
though it incurs a loss of $200 per day.
Unless the airline could find a more profitable use for the plane, it would incur the
larger loss of $3,000 equal to the fixed costs of the plane if it kept the plane idle.
In the long run, all costs are variable and it would be better for the airline to
discontinue its Los Angeles to New York service altogether.
11. (
a
) With
TFC
= $100,000,
P
= $30, and
AVC
= $20,
At
QB
= 10,000 and
P
= $30,
TR
= ($30)(10,000) = $300,000.
(
b
) With
TFC
= $100,000, π = $60,000,
P
= $30, and
AVC
= $20,
At
QT
= 16,000 and
P
=$30,
TR
= ($30)(16,000) = $480,000
Spreadsheet problem 1
Salvatore’s Chapter 9:
a.
Problems:
7. A 33 percent import tariff on commodity
X
will shift the foreign supply curve of
imports of commodity
X
to the nation (i.e.,
SF
) upward by $1, so that the tariffinclusive
PX
= $4.
At
PX
= $4, domestic consumers would purchase 500
X
(given by the point on
DX
at
PX
= $4), of which 300
X
would be produced domestically (given by the point on
SX
at
PX
= $4), and the difference of 200
X
between the quantity consumed and produced
domestically would be imported (see Figure 94). Thus, the consumption effect of the
tariff is −100
X
, the production effect is +100
X
, and the trade effect is −200
X
. The
nation's government also collects the revenue $200 ($1 on each of the 200
X
imported).
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This is the revenue effect of the tariff.
11. Authors would like publishers to maximize total revenue. This occurs where
the demand curve for book sales has unitary price elasticity. Publishers, on the other
hand, want to maximize total profits, which occurs where
MR
=
MC
(and
MC
is rising).
Since
MC
is positive,
MR
is also positive (i.e., the publisher operates on the inelastic
portion of its demand curve). Thus, there is a basic conflict between the interest of
authors and those of publishers.
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 Spring '13
 GeorgeYoung
 Economics

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