Answer:The Firm should continue to produce up until Revenue generated equals Marginal Cost. Cold Duck Company would maximize profit when the number of flights is in a level when Revenue equals Marginal cost which is the same as variable costs in this case.
Explanation:
Cold duck Airlines leases plane on a year long contract at an average cost of $600 per flight.The average cost of $600 per flight is calculated as Lease cost per year divided by number of flights. This tells us that the lease cost per year is fixed and the $600 average cost per flight is the Average Fixed cost. if Cold duck flies more planes between Tacoma and Portland The number flights will increase which will decrease the average lease cost per flight.
Other Costs fuel (flight attendants,etc) amount to $550 per flight, these costs will increase as Cold Duck Airlines increases flights between Tacoma and Portland. These costs should be treated as Variable costs because they increase as the number flights increases.
The revenue generated on each flight, which can be seen as the price for each flight is $1000.
The Firm maximizes its profits in a competitive market by producing a quantity level That makes Price equals Marginal cost, Marginal cost being the price of producing an additional unit, in this case is the cost of an additional flight which is $550 amount of other costs because lease cost fixed whether Cold Duck Makes 1 flight or 10 flights it doesnot change
The Firm should continue to produce up until Revenue generated equals Marginal Cost. Cold Duck Company would maximize profit when the number of flights is in a level when Revenue equals Marginal cost which is the same as variable costs in this case. Revenue would be equal to $550 when profit is at the maximum level
What’s the question u need help with?
Answer:
Reinvestment risk
Explanation:
The mortgage banker would be most concerned about reinvestment risk, among other risks. Reinvestment risk relates to the inability to earn an original interest rate on an investment from periodic cash flows from the investment, thus limiting the overall rate of return on the investment.
In the question, since market mortgage rate has declined to 7.5%, the mortgage bank would have to reinvest the amount repaid from the original borrower at the new market rate, which is 1% lower than the ruling rate when the original borrower took the loan.
The problem would be compounded if the cost of funding to the mortgage bank was, for instance 8%. If that was the case, on the original loan, the mortgage bank was earning a (8.5% less 8% cost of funding =) 0.5% on the loan. However, due to the decline in market rates, the mortgage bank would have a cost of 8% compare to a market rate of 7.5% it would earn, thus resulting in a negative return of 0.5%.
Your answer is C: Asymmetric Information
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