Chapter 8: Discussion Question
Running Head: CRITICAL THINKING #4
Critical Thinking #4
BUSI 620
Liberty University
11/17/2015
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Running Head: CRITICAL THINKING #4
2. (a). The difference between marginal cost and incremental cost is that marginal cost happens
when production takes place of a unit and incremental cost happens when a decision is made.
(b). Sunk cost are that of costs that have taken place but then can not be recovered. When these
cost occur they are cost that have already happened but then they are independent from future
events.
Chapter 8: Problem Questions
3.
80 passengers x $200 + 50 passengers x $200= $26,000 revenue
Fixed cost= $3,000
Operating cost= $11,000
Overnight stay= $1,200
Evening Flight:
3,000(2) + 11,000(2) + 1,200= 29,200
Revenue= $26,000; Costs= $29,200; total loss= $3,200
Same Day Flight Revenue & Costs:
70(200) + 50(200)= $24,000
3,000+ 11,000(2)= $25,000
Revenue= $24,000; Costs= $25,000; total loss= $1,000
Yes, the airline should change the morning flight to then return that afternoon to help reduce the
losses they are having, because the total loss for the overnight flight is $3,200 and the total losses
for the same day is $1,000. The company should look at figuring out how to not have the $1,000
losses if they would like to continue to be in business. If they can not figure out how to get rid of
the $1,000 daily loss then they should not remain in business.
4. (a). The company will have an increase in their short run marginal cost, because of their
outdated technology and how they will effect their operating during peak situations.
(b). The company should however, continue to use the older technology equipment, because the
older equipment will still operate accordingly to the situations and the new equipment could shut
down or goes out of service when needed. Sometimes replacing the older equipment is the best
scenario; however, that is not always the case if you look at the bigger picture for the company.
Running Head: CRITICAL THINKING #4
12. (a).
Average variable cost= $20
Selling price= $30
Contribution= Selling price- variable cost= $30-$20= $10
Fixed cost= $40,000
Break even point= fixed cost/contribution= $40,000/$10= 4000 units
Break even in sales = 4000x$30= $120,000
(b).
Selling Price = $30
Variable cost= $10
Contribution= $20
Fixed cost= $100,000
Break even point for fixed cost= $100,000/20= 5,000 units
Desired profit= $60,000
(Desired profit+ fixed cost)/ Contribution= (60,000+ 100,000)/ 20= 8,000 units
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Chapter 9: Problem Questions
7. P= 3+(3x0.33) = 3+0.99
=$3.99
200 united is the difference between the demand and supply
11. The major issue between publisher and author is determining the appropriate percentage of
revenue for the books sales that the author should then receive for their book. The issue that lays
is that the book was written by the author and therefore there would be no sales without the
author writing the books; however, there would be no sales if the publisher had no purchased the
content of the book from the author and then published it.
Chapter 9 Questions:
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Running Head: CRITICAL THINKING #4
9-2. The beer distributors would have been on the side against the legalization of marijuana,
because it could decrease their market with alcohol. Profits for the beer distributors could
possibly lose a good amount of profits from the legalization of marijuana. For the snack vendors
would see this as a gain, because it would be another legal way for individuals to enjoy life while
wanting their products.
9-4. Managers in those of competitive industries are likely to use pricing strategies with their
time, because competition in an industry can cause prices to decrease. A manager in competitive
industries will need to motor other companies to keep their pricing competitive with our
companies within the industry, so manager must keep an eye on this.
Chapter 11 Questions:
11-4.When there is a decrease in the United States interest rate; it then decreases the amount of
Americas who actually want to save, because there is then a lower rate of return. Also, this will
decrease the value of a dollar, which is extremely damaging for the United States. Then you go
into the issue where the cost of exports becomes more competitive and the cost of imports is
more expensive for the United States. Lastly, the exchange rate would then change, an example
of this would be the United States dollar equal less than another countries currency when it was
above it prior to the decrease of interest rates.
11-5. The United States dollar = 12.88 pesos, if the dollar in the United States decreased then that
would cause a change to eh pesos and the amount rising. If the value were to change then
businesses in El Paso would then export at a more competitive price and the consumers in Juarez
would be able to purchase the goods at a much lower cost. Finally, the consumers in El Paso
would be faced with a higher import price.
