Question

THE KEY PRINCIPLES OF ECONOMCS The Marginal Principle Apply the marginal principle 2.1 A taxi company currently bas nine cabs in its fleet, and its total daily cost is $4.000, If the company added a 10th cab, its daily total cost would be $4,200, or $420 per cab. Adding the 10th cab will increase the daily total revenue by $300. Should the company add the 10th cab? (Yes/No) 2.2 In Figure 3 on suppose the marginal cost of movies is constant at S125 million. Is it sensible to produce the third movie? (Yes/No) Suppose that stricter emissions standards would reduce health-care costs by S50 million but increase the costs of fuel and emissions equipment by $30 mil- lion. Is it sensible to tighten the emissions standards? (Yes/No) 2.4 Arrows up or down: The decision about how fast to sail a cargo ship is based on the benefit and the cost. (Related to Application 2.) 2.5 How Fast to Drive? Suppose Duke is driving to a nearby town to attend a dance party, and must decide how fast to drive. The marginal benefit of speed is the extra dance time he will get by driving faster, and the marginal cost is the additional risk of a collision. The marginal-benefit curve is negatively sloped, and the marginal-cost curve is positively sloped. a. Draw a pair of curves that suggest Duke will drive 40 mph. b. Suppose the normal country band is replaced by Adam Smith and the Invisible Hands, Duke's favor- ite punk band. Duke's utility from slam dancing is twice his utility from the two-step. Use your curves to show how Duke's chosen speed will change. c. Suppose Duke's favorite dance partner, Daisy, is grounded for makeup violations. Use your curves to show how Duke's chosen speed will change. d. Suppose the legal speed limit is set at 35 mph, and there is a 50 percent chance that Duke will be caught if he speeds. Use your curves to show how Duke's chosen speed will change. 2.6 Continental Airlines Goes Marginal. In the 1960s, Continental Airlines puzzled observers of the airline industry and dismayed its stockholders by running flights with up to half the seats empty. The average cost of running a flight was $4,000, a figure that includes fixed costs such as airport fees and the cost of running the reservation system. A half-full aircraft generated only $3,100 of revenue. a. Use the marginal principle to explain why Conti- nental ran half-empty flights. b. It will be sensible to run a half-empty flight if the marginal of flight is than 2.7 Marginal Airlines. Marginal Airlines runs 10 flights per day at a total cost of $50,000, including $30,000 in fixed costs for airport fees and the reservation system and $20,000 for flight crews and food service. a. If an 11th flight would have 25 passengers, each pay- ing S100, would it be sensible to run the flight? b. If the 11th flight would have only 15 passengers, would it be sensible to run the flight? 2.8 How Many Police Officers? In your city, each police officer has a budgetary cost of S-0,000 per year. The property loss from each burglary is $4,000. The first officer hired will reduce crime by 40 burglaries, and each additional officer will reduce crime by half as much as the previous one. How many officers should the city hire? Illustrate with a graph with a marginal benefit curve and a marginal-cost curve. 2.9 How Many Hours at the Barber Shop? The oppor- tunity cost of your time spent cutting hair at your bar- ber shop is $20 per hour, Electricity costs $6 per hour and your weekly rent is $250. You normally stay open nine hours per day. a. What is the marginal cost of staying open for one more hour? b. If you expect to give two haircuts in the 10th hour and you charge SiS per haircut, is it sensible to stay open for the extra hour? 2.10 How Many Pints of Blackberries? The pleasure you get from each pint of freshly picked blackberries is $2.00. It takes you 12 minutes to pick the first pint, and cach additional pint takes an additional 2 minutes (14 minutes for the second pint, 16 minutes for the third pint, and so on). The opportunity cost of your time is S0.10 per minute. a. How many pints of blackberries should you pick? Illustrate with a complete graph. b. How would your answer to (a) change if your plea- sure decreased by $0.20 for each additional pint (S1.80 for the second, $1.60 for the third, and so on)? Illustrate with a complete graph. The Principle of Voluntary Exchange Apply the principle of voluntary exchange. 3.1 When two people involved in an exchange say "thank you" afterward, they are merely being polite. _(True/False) 3.2 Consider a transaction in which a consumer buys a book for $15. The value of the book to the buyer is at least S_ and the cost of producing the book is no more than $__ 3.3 Arrow up or down: Andy buys and eats one apple per day, and smacks his lips in appreciation as he eats it. The greater his satisfaction with the exchange of 43

Answer 1

Solution :- (1)

Total Cost of 9 Cabs = $4,000

If the 10th Cab is added then total Cost = $4,200

Therefore Incremental Cost = $4,200 - $4,000 = $200

Incremental Revenue due to adding 10th Cab = $300

Therefore net Benefit = $300 - $200 = $100

As there is benefit in adding 10th Cab so the company should paid the 10th Cab,

Therefore the Answer is Yes.

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