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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

HighFlyer Airlines wants to build new airplanes with greatly increased cabin space. This will allow HighFlyer Airlines to give passengers more comfort and sell more tickets at a higher price. However, redesigning the cabin means rethinking many other elements of the airplane as well, like engine and luggage placement, and the most efficient shape of the plane for moving through the air. HighFlyer Airlines has developed a list of possible methods to increase cabin space, along with estimates of how these approaches would affect the plane‘s operating costs and ticket sales. Based on these estimates, Table 13.5 shows the value of R&D projects that provide at least a certain private rate of return. Column 1 = Private Rate of Return. Column 2 = Value of R&D projects that Return at Least the Private Rate of Return to HighFlyer Airlines. Use the data to answer the following questions.

Chapter 13, Problem 23P, HighFlyer Airlines wants to build new airplanes with greatly increased cabin space. This will allow , example  1

a. If the opportunity cost of financial capital for HighFlyer Airlines is Chapter 13, Problem 23P, HighFlyer Airlines wants to build new airplanes with greatly increased cabin space. This will allow , example  2 how much should the firm invest in R&D?

b. Assume that the social rate of return for R&D is an additional Chapter 13, Problem 23P, HighFlyer Airlines wants to build new airplanes with greatly increased cabin space. This will allow , example  3 on top of the private return; that is, an R&D investment that had a Chapter 13, Problem 23P, HighFlyer Airlines wants to build new airplanes with greatly increased cabin space. This will allow , example  4 private return to HighFlyer Airlines would have a Chapter 13, Problem 23P, HighFlyer Airlines wants to build new airplanes with greatly increased cabin space. This will allow , example  5 social return. How much investment is socially optimal at the Chapter 13, Problem 23P, HighFlyer Airlines wants to build new airplanes with greatly increased cabin space. This will allow , example  6 interest rate?

a)

To determine

The amount that firm should invest if the opportunity cost of financial capital for H Flyer airlines is 6% is to be determined.

Explanation

Given:

    Private Rate of ReturnValue of R&D

      12%

      $100

      10%

      $200

      8%

      $300

     &ems

b)

To determine

The amount that firm should invest if social rate of return is 2% in addition to the private return for HighFlyer airlines and the investment is social optimal at 6% interest rate is to be determined.

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