Suppose Island Bikes, a Profit-Maximizing Firm, Is the Only Bike

question 53

Multiple Choice

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the table.  
$$\begin{array} { | c | c | } \hline \text { Custamer } & \begin{array} { c } \text { Reservetion Price } \\\text { (\$ /Rental) }\end{array} \\\hline \mathrm { A } & 22 \\\hline \mathrm { B } & 16 \\\hline \mathrm { C } & 12 \\\hline \mathrm { D } & \mathrm { 8 } \\\hline \mathrm { E } & 6 \\\hline \mathrm { F } & 4 \\\hline\end{array}$$ Suppose Island Bikes knows that customers whose reservation prices are at least $10 always rent bikes before noon, while those whose reservation prices are below $10 never do so. If Island Bikes charges a different price in the morning and in the afternoon, then what will be the total economic surplus?

• A)$49
• B)$41
• C)$9
• D)$3

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Definitions:

Year-End Adjustment

A financial correction or modification made at the end of a fiscal year to various accounts to properly state them for reporting purposes.

Bad Debts Expense

The portion of receivables that a company anticipates will not be collected and is thus written off as an expense in the financial statements.

Operating Expense

Incurred expenses that are related to a company's main operational activities, excluding cost of goods sold and capital expenditures.

Statement of Income

A financial statement that reports a company's financial performance over a specific period, showing income, expenses, and net profit or loss.