An Airport Is Located Next to a Housing Development

question 9

Multiple Choice

An airport is located next to a housing development. Where X is the number of planes that land per day and Y is the number of houses in the housing development, profits of the airport are 22X - X² and profits of the developer are 26Y - Y² - XY. Let H₁ be the number of houses built if a single profit-maximizing company owns the airport and the housing development. Let H₂ be the number of houses built if the airport and the housing development are operated independently and the airport has to pay the developer the total "damages" XY done by the planes to the developer's profits.

• A) H₁ = H₂ = 10.
• B) H₁ = 10 and H₂ = 13.
• C) H₁ = 13 and H₂ = 10.
• D) H₁ = 12 and H₂ = 12.
• E) H₁ = 12 and H₂ = 16.

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Definitions:

Activity-Based Costing

A costing method that assigns costs to products or services based on the activities and resources that contribute to their production.

Expected Activity

The anticipated level of operations or production activity, often used in the budgeting process or for setting performance standards.

Activity-Based Costing

A pricing approach that allocates overheads and indirect expenses to corresponding products and services according to the activities they necessitate.

Activity Rate

A metric used to allocate costs to cost objects based on the activities that drive costs, often used in activity-based costing.