| Critical Thinking 4 Assignment |
| NAME |
| GRADE | 0 |
| Questions | | Points Possible | Points Attained | INSTRUCTOR COMMENTS |
| Salvatore 8: Discussion Question 2 | (a) What is the distinction between marginal cost and incremental cost? (b) How are sunk costs treated in managerial decision making? Why? | 5 |
| ANSWER: | Your answer goes here |
| Salvatore 8: Problem 3 | Airway Express has an evening flight from Los Angeles to New York with an average of 80 passengers and a return flight the next afternoon with an average of 50 passengers. The plane makes no other trip. The charge for the plane remaining in New York overnight is $1,200 and would be zero in Los Angeles. The airline is contemplating eliminating the night flight out of Los Angeles and replacing it with a morning flight. The estimated number of passengers is 70 in the morning flight and 50 in the return afternoon flight. The one-way ticket for any flight is $200. The operating cost of the plane for each flight is $11,000. The fixed costs for the plane are $3,000 per day whether it flies or not. (a) Should the airline replace its night flight from Los Angeles with a morning flight? (b) Should the airline remain in business?
NOTE: 1. P3(a): Calculate and compare the profit under each flight.
2. P3(b) is asking: should Airway Express continue providing the flight between Los Angeles and New York? Even if Airway Express decides not to fly, it still has to pay the fixed costs of $3,000 per day. The evening flight with the return flight the next afternoon is counted as 1 day, not 2 days.
| 15 |
| ANSWER: | Your answer goes here |
| Salvatore 8: Problem 4 | Electric utility companies usually operate their most modern and efficient equipment continuously (i. e., around the clock) and use their older and less efficient equipment only to meet periods of peak electricity demand. (a) What does this imply for the short- run marginal cost of these firms? (b) Why do these firms not replace all their older equipment with new equipment in the long run? | 5 |
| ANSWER: | Your answer goes here |
| Salvatore 8: Problem 12 | With respect to the given data of Problem 11, (a) find the publisher’s breakeven output and the output that would lead to a total profit of $60,000 if, as a result of a technological breakthrough in printing, the publisher was able to lower its TFC to $40,000. Draw a chart showing your answer. (b) Find the publisher’s breakeven output and the output that would lead to a total profit of $60,000 if total fixed costs remained at $100,000 but average variable costs declined to $ 10. Draw a chart to show your answer. (c) Find the breakeven output at which the publisher earns a profit of $60,000 if the publisher’s total fixed costs remained at $100,000 and its average variable costs at $20 but the publisher charged a price of $40. Draw a chart showing your answer.
Note: You do not need to draw the chart. | 10 |
| ANSWER: | Your answer goes here |
| Salvatore 8: Spreadsheet Problem 1 | For the following table, calculate in Excel the average fi xed costs ( AFC), the average variable costs ( AVC), the average total costs ( ATC), and the marginal costs ( MC). | 10 |
| ANSWER: | The spreadsheet work goes on the worksheet labeled SP4. Your answer to the questions go here |
| Salvatore 9: Problem 7 | From Figure 9-4, determine the effect of a 33 percent import tariff on commodity X.
NOTE: The tariff-inclusive price will be $3(1+.33) = $4. What are the impacts of tariff on domestic consumption, domestic production, imports, and government’s tariff revenue? Show the numbers; for example, at figure 9-4, if you draw a line starting at Px=$4 and parallel to the X axis, it will cross the demand curve, Dx, at 500X. Therefore, you know that the domestic consumption will decrease from 600X to 500X. | 5 |
| ANSWER: | Your answer goes here |
| Salvatore 9: Problem 11 | Most book publishers pay authors a percentage of the revenue from book sales. Explain the conflict that this creates between publishers and authors.
NOTE: The goal of publishers is to maximize profit. | 5 |
| ANSWER: | Your answer goes here |
| Salvatore 9: Spreadsheet Problem 1 | If the market supply function of a commodity is QS = 3,250 and (a) the market demand function is QD = 4,750 – 50P and P is expressed in dollars, use Excel to calculate what the equilibrium price is by calculating values of QD and QS for P from 25 to 50 in 1’s. (b) If the market demand increases to QD' = 5,350 – 50P, what is the equilibrium price? (c) If the market demand decreases to QD'' = 4,150 – 50P, what is the equilibrium price? (d) For (a)–(c), if TC = 0.005(Q^2) – Q, what is the profit in each case?
NOTE: 2. Revised spreadsheet problem 1: Just answer 1(a) and 1(d). For 1(d), change “For (a) to (c)” to “For (a) only.” | 5 |
| ANSWER: | The spreadsheet work goes on the worksheet labeled SP4. Your answer to the questions go here |
| Froeb et al 9: IP 9-2 | Snack food venders and beer distributors earn some
monopoly profits in their local markets but see them
slowly erode from various new substitutes. When
California voted on legalizing marijuana, which side
would you think that California beer distributors
were on? What about snack food venders? Why?
NOTE: Think about substitutes and complements. For example, marijuana and snack foods are strong complements (or so we are told). | 5 |
| ANSWER: | Your answer goes here |
| Froeb et al 9: IP 9-4 | Relative to managers in more monopolistic industries, are managers in more competitive industries more likely to spend their time on reducing costs or on pricing strategies? | 5 |
| ANSWER: | Your answer goes here |
| Froeb et al 11: IP 11-4 | How does a decrease in U.S. interest rates affect the EU/ U.S. exchange rate?
NOTE: Use the carry trade to predict the impact of lower U.S. interest rates on Euro/$. | 5 |
| ANSWER: | Your answer goes here |
| Froeb et al 11: IP 11-5 | How will a dollar devaluation affect businesses and consumers in the twin cities of El Paso, United States, and Juarez, Mexico?
NOTE: Make sure you explain the impact on the twin cities, not just 1 city. | 5 |
| ANSWER: | Your answer goes here |
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qct4_assignment_template_march_2015.xlsx
