has developed a list of possible methods to increase cabin space, along with estimates of how these

approaches would affect the plane's operating costs and ticket sales. Based on these estimates, Table 13.5

shows the value of R&D projects that provide at least a certain private rate of return. Column 1 = Private

Rate of Return. Column 2 = Value of R&D Projects that Return at Least the Private Rate of Return to

HighFlyer Airlines. Use the data to answer the following questions.

Private Rate of Return Value of R&D

12%

10%

8%

6%

4%

TABLE 13.5

$100

$200

$300

$400

$500

a.

If the opportunity cost of financial capital for HighFlyer Airlines is 6%, how much should the firm

invest in R&D?

b. Assume that the social rate of return for R&D is an additional 2% on top of the private return; that is,

an R&D investment that had a 7% private return to HighFlyer Airlines would have a 9% social return.

How much investment is socially optimal at the 6% interest rate?
{"file_name": "Microeconomics3e.pdf", "batch_upload": true, "moddate": "2022-12-07T14:23:05-06:00", "file_size_mb": 26.99, "producer": "Prince 14.2 (www.princexml.com)", "upload_timestamp": "2026-02-07T15:37:44.339247", "file_type": ".pdf", "file_hash": "830b81f41611ac67a490444dbb5d6aed292224606965b06965b914443c93331a", "total_pages": 597, "source": "downloads\\business\\economics\\Microeconomics3e.pdf", "title": "Principles of Microeconomics 3e", "source_file": "downloads\\business\\economics\\Microeconomics3e.pdf", "creationdate": "2022-12-07T14:15:44-06:00", "uploaded_via": "batch_uploader", "creator": "PDFMiner"}