1. Airway Express has an evening flight from Los Angles 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 fight. 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) Calculate and compare the profit under each flight
(b) Should the airline remain in business? (asking should Airway Express continue providing the flight between Los Angles and New York? Even 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 fight the next afternoon is counted as one day, not two days).
2. The Goldberg-Scheinman Publishing Company is publishing a new managerial economics text for which it has estimated the following total fixed and average variable costs:
Total Fixed Costs:
Copy editing $10,000
Typesetting 70,000
Selling and promotion 20,000
Total Fixed costs $100,000
Average variable costs:
Printing and binding $6
Administrative costs 2
Sales commissions 1
Bookstore discounts 7
Author's royalties 4
Average Variable Costs $20
Project selling price $30
(a) Determine the breakeven output and total sales revenues and draw the cost-volume-profit chart, and
(b) determine the output that would generate a total profit of $60,000 and the total sales revenues at that output level; draw the cost-volume-profit chart.
1). For the following table, calculate in Excel the average fixed costs (AFC), the average variable costs (AVC), the average total costs (ATC), and the marginal costs (MC).
Quantity of output Total variable costs Total costs AFC AVC ATCMC
0 0 30
1 20 50
2 30 60
3 48 78
4 90 120
5 170 200
(2). Redo Problem 1 using Excel. Calculate the quantity demanded and quantity supplied for prices ranging from 1 to 10 by 1's. Formulas should be entered in columns C and D. For instance, the formula in C3 will be "=10,000-1,000*B3". What is the equilibrium price? Use Excel's graphing tool to plot the supply and demand schedules on the same graph. Where do the two curves cross?
P QD Qs
1
2
3
4
5
6
7
8
9
10
(3). Given the following learning curve equation, AC=1,000 Q-0.3 where AC refers to the average cost of production and Q to the total cumulative output of the firm over time, find the AC of the firm in Excel for producing (a) the 100th unit of the product (b) the 200th unit of the product and (c) the 400th unit of the product.
1. If the market supply function of a commodity is QS = 3,250 and (a) the market demand function is QD and QS for P from 25 to 50 in 1's. (b) For (a), if TC=0.005Q2 - Q, what is the profit in each case?
P Qs QD QD' QD" TR-TC
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Suppose that new entry decreased your demand elasticity from -2 to -3 (made demand more elastic). By how much should you adjust your price of $10? (use (P-MC)/P=1/¦e¦ to calculate MC and then use the same equation to find out the new price. ¦e¦is the absolute value of demand elasticity.