) The total cost of running the plane for a day is $25,000 ($11,000 in operating costs
for the two flights per day plus the $3,000 of fixed costs). Also, the airline pays
$1,200 per day to remain in New York overnight. Thus, total costs equal $26,200.
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 one-way 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.
= $30, and
= 10,000 and
= ($30)(10,000) = $300,000.
= $100,000, π = $60,000,
= $30, and
= 16,000 and
= ($30)(16,000) = $480,000
Spreadsheet problem 1
Salvatore’s Chapter 9:
7. A 33 percent import tariff on commodity
will shift the foreign supply curve of
imports of commodity
to the nation (i.e.,
) upward by $1, so that the tariff-inclusive
= $4, domestic consumers would purchase 500
(given by the point on
= $4), of which 300
would be produced domestically (given by the point on
= $4), and the difference of 200
between the quantity consumed and produced
domestically would be imported (see Figure 9-4). Thus, the consumption effect of the
tariff is −100
, the production effect is +100
, and the trade effect is −200
nation's government also collects the revenue $200 ($1 on each of the 200