Transport Economics

Theory, application and policy

by Graham Mallard and Stephen Glaister

Chapter 4

Essay questions

  1. “The neoclassical assumption of profit-maximisation is unrealistic and so should not be the foundation of economic theories of the firm.” - Discuss.
  2. Drawing upon the transport sector, explain the nature of costs and revenues within economic theories of the firm.

Exercises

  1. Assume a rail company faces the following equations:

    Qd = 500 - P
    TC = 10 + 100Q

    (a) Derive the equation for the inverse demand curve.
    (b) Derive the equation for total revenue.
    (c) Derive the equation for marginal revenue.
    (d) Calculate the profit-maximising output and price.
    (e) What is the level of abnormal profit being made?
    (f) What would the level of output be if the rail company maximised revenue?
    (g) What would the level of revenue be under revenue maximisation?

    The fixed costs of the company double.

    (h) What is the new profit-maximising output and price; and what is the new resulting level of profit?