Overview
1. Assume a firm has fixed costs of $80 and variable costs as indicated in the table below. Complete the cost table.
Total product | Total variable cost | Total cost | AFC | AVC | ATC | MC |
0 | $ 0 | $ 80 | — | — | — | — |
1 | 110 | 190 | $_____ | $_____ | $_____ | $_____ |
2 | 150 | 230 | _____ | _____ | _____ | _____ |
3 | 180 | 260 | _____ | _____ | _____ | _____ |
4 | 220 | 300 | _____ | _____ | _____ | _____ |
5 | 270 | 350 | _____ | _____ | _____ | _____ |
6 | 340 | 420 | _____ | _____ | _____ | _____ |
7 | 440 | 520 | _____ | _____ | _____ | _____ |
8 | 580 | 660 | _____ | _____ | _____ | _____ |
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2. Ahmad quit his job at bank Muscat where he earned $70,000 a year. He used his saving of $100,000 in the bank that earned him 10% interest annually to buy a van taxi. Ahmad decided to buy the taxi and set up a commuter service between Barakah and Ruwi. There are 1000 people who will pay $400 a year each for the commuter service; $280 from each person goes for gas, maintenance, insurance, and depreciation. Calculate:
(a) Ahmad’s total revenues; explicit costs & accounting profit.
(b) Economic costs & Economic profit or loss.
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3. An airline is flying between two cities. The airline has the following costs associated with the flight:
Crew $4000 Plane daily depreciation $2000
Fuel 1000 Plane daily insurance 2000
Landing fee 1000
The airline has an average of 40 passengers paying an average of $200 for this flight.
Do you think the airline should be flying between the two cities? Evaluate from a short run
Profit maximization perspective.