Question

2)How do self-interested businesses benefit society?

3) Using the thinking at the margin concept, explain a student's decision to wake up and attend an 8 AM class in the winter (the student is already registered for the class).

4)Why do airlines sometimes advertise last-minute airline ticket sales at low prices? What economic principle are they applying?

Answer 1

2) Self interested business benefit the society because in their own self interest lies the interest of the society. This could be the situation when the form decides to produce good according to the preferences of the consumers. They would want to provide best quality goods such that the sales is higher and so is the revenue. Hence in doing this, the consumer would be benefited because he would get high quality goods and services.

Similarly, when the firms earn higher revenues, they would increase the scale of operations and this would lead to larger employment which is also a benefit to society.

Hence when the businesses work for their self interest, the society is also benefited

3) The student's decision to wake up or not depends on the opportunity cost and marginal analysis.

The opportunity cost of leaving the class would be extra sleep in heated room in winter. The marginal cost would be the cost of reduction in grade if attendance is a factor or otherwise missing the lesson and the marginal benefits would be a chance of higher grade.

So the student would equate the costs and benefits of sleeping through the time of class or attending it on a winter morning. These would be the decisive factors.

4) The airlines work on the concept of marginal benefit and marginal cost. The marginal benefits would be the price of ticket the consumer pays, even when it is less than the standard ticket price.

And the marginal cost would be the cost of food given on flight, the fuel cost which increases due to increased weight etc.

The firm would equate the marginal cost and marginal revenue and if the costs is less than revenue, then the firm should sell the tickets at low price. Also since the fixed costs are the same, they would reduce when passengers increase.

(You can comment for doubts)