Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 19, Problem 4DQ
To determine
The impact of fixed cost in the decision-making process.
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Critical Analysis Questions (Ch 11)
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6. Critical analysis Q13
Gouge-em Cable Company is the only cable television service company licensed to operate in Backwater County. Most of its costs are access fees and
maintenance expenses. These fixed costs total $100,000 monthly. The marginal cost of adding another subscriber to its system is constant at $4 per
month. Gouge-em's demand curve can be determined from the data in the accompanying table.
Complete the following table by computing the total revenue, total cost, and profit at each of the various subscription prices.
Number of Subscribers
Total Revenue
Fixed Cost
Total Cost
Profit
Subscription Price
(Thousands Per Month)
($, Thousands) (S, Thousands) (S, Thousands) (S, Thousands)
$25
20
$100
20
40
$100
15
IS
$100
60
10
80
$100
100
$100
IS
150
15A
$100
thousand.
Gouge-em will charge
v for its cable services, earning them a profit of $
$1
Now suppose the Back
unty Public…
Paul wants to create a scholarship fund at his alma mater. He wants to provide support for a
scholarship of $10,000 each year, forever. If he gives the school $299,298, what minimum interest
rate must the school earn on the funds to provide the level of support that Paul wants for the college?
2%
34
O 4%
O 5%
O 0 o o
A coal-fired power plant can produce electricity at a variable cost of 4 cents per kilowatt hour when running at its full capacity of 30 megawatts per hour, 16 cents per kilowatt hour when running at 20 megawatts per hour, and 24 cents per kilowatt hour when running at 10 megawatts per hour. A gas-fired power plant can produce electricity at a variable cost of 12 cents per kilowatt-hour at any capacity from 1 megawatt per hour to its full capacity of 5 megawatts per hour. The cost of constructing a coal-fired plant is $50 million, but it costs only $10 million to build a gas-fired plant. a. Consider a city that has a peak afternoon demand of 80 megawatts of electricity. If it wants all plants to operate at full capacity, what combination of coal-fired plants and gas-fired plants would minimize construction costs? b. How much will the city spend on building that combination of plants? c. What will the average cost per kilowatt-hour be if you average over all 80 megawatts that are…
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