Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Question
Chapter 8, Problem 1E
To determine
Whether US Airways build the training facility at the location or not.
Expert Solution & Answer
Explanation of Solution
The cost of next best alternative available to US Airways that is, selling the land to developer is $2.5 million.
Further, the airlines do not meet the acceptance criteria of cost not more than $850,000.
The
The US Airways, hence, can build the training center at some other location.
Economics Concept Introduction
Introduction:
Opportunity cost is the next best alternative foregone.
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US Airways owns a piece of land near the Pittsburgh International Airport. The land originally cost US Airways $375,000. The airline is considering building a new training center on this land. US Airways determined that the proposal to build the new facility is acceptable if the original cost of the land is used in the analysis, but the proposal does not meet the airline’s project acceptance criteria if the land cost is above $850,000. A developer recently offered US Airways $2.5 million for the land. Should US Airways build the training facility at this location?
US Airways owns a piece of land near the Pittsburgh International Airport. The land originally cost USAirways $375,000. The airline is considering building a new training center on this land. US Airwaysdetermined that the proposal the new facility is acceptable if the original cost of the land is used in theanalysis, but the proposal does not meet the airline’s project acceptance criteria if the land cost is above$850,000. A developer recently offered US Airways $2.5 million for the land.Explain fully if US Airways should build the training facility at this location or not.
The town council of Frostbite, Ontario, is trying to decide whether to build an outdoor skating rink which would cost $1.2 million and last for only one season. Operating costs would be zero. Yearly passes would be sold to anyone who wanted to use the rink. If p is the price of the pass in dollars, the number demanded would be q = 1600 - 0.5p. The council has asked you to advise them on building the rink. You should tell them that
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a. revenues won’t cover construction costs at any ticket price. There is no way to increase total consumer surplus by building the rink.
b.if the rink is built and price is set to maximize profits, the town makes a profit and consumers will be better off.
c.if the rink is built and price is set to maximize profits, the town makes a profit but consumers are worse off than without a rink.
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Chapter 8 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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