A rural self-service station with automatic credit card paying methods has propertyworth $3,000. The only variable cost is for the gasoline, which has a marginal cost equalto MC = $0.01Q, where Q is number of gallons sold. The price per gallon charged by thestation is $2.50. The interest rate measure for the cost of capital is 10% (note that thefixed costs are calculated as the opportunity cost of capital, that is, (FC =10% x $3,000). Last year the station sold 300 gallons of gasoline. The owner, anabsentee entrepreneur, is willing to operate with no economic profit, but he will nottolerate economic losses over the long run.a. In the short run, is he maximizing his profits? Why?b. Given the conditions listed above, what should the owner do in the short run? Showyour work.c. Next, a large expressway is built beside the station, and suddenly the demand forroadside property soars. The owner's property value triples to $9,000, but hismarginal cost function stays the same. The price of gasoline now climbs to $3 pergallon. What is the new quantity that the station should sell in the short run, andhow much profit (loss) will be generated?d. If these conditions persist, what should the owner do in the long run?e. Is he better off after the highway came in than he was before? Why?

Since you have posted a question with multiple sub-parts, we will solve first three subparts for…

a. In the short run, is he maximizing his profits? Why? b. Given the conditions listed above, what should the owner do in the short run? Show your work. c. Next, a large expressway is built beside the station, and suddenly the demand for roadside property soars. The owner's property value triples to $9,000, but his marginal cost function stays the same. The price of gasoline now climbs to $3 per gallon. What is the new quantity that the station should sell in the short run, how much profit (loss) will be generated? and

a. In the short run, is he maximizing his profits? Why? b. Given the conditions listed above, what should the owner do in the short run? Show your work. c. Next, a large expressway is built beside the station, and suddenly the demand for roadside property soars. The owner's property value triples to $9,000, but his marginal cost function stays the same. The price of gasoline now climbs to $3 per gallon. What is the new quantity that the station should sell in the short run, how much profit (loss) will be generated? and

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter1: Introduction: What This Book Is About

Section: Chapter Questions

Problem 1.1IP

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