Answered: Consider an airline’s decision about…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter4: Extent (how Much) Decisions

Section: Chapter Questions

Problem 3MC

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Consider an airline’s decision about whether to cancel a particular flight that hasn’t sold out. The following table provides data on the total cost of operating a 100-seat plane for various numbers of passengers.

Number of Passengers	Total Cost
(Dollars per flight)
0	35,000
10	55,000
20	65,000
30	67,000
40	68,000
50	68,500
60	69,000
70	70,000
80	70,500
90	70,800
100	70,900

Given the information presented in the previous table, the fixed cost to operate this flight is ___.

At each ticket price, a different number of consumers will be willing to purchase tickets for this flight. Assume that the price of a flight is fixed for the duration of ticket sales. Use the previous table as well as the following demand schedule to complete the questions that follow.

Price	Quantity Demanded
(Dollars per ticket)	(Tickets per flight)
800	0
600	20
450	80
150	100

Complete the following table by computing total revenue, total cost, variable cost, and profit for each of the prices listed. (Hint: Be sure to enter a minus sign before the number if the numeric value of an entry is negative.)

Price	Total Revenue	Total Cost	Variable Cost	Profit
(Dollars per ticket)	(TR)	(TC)	(VC)	(TR–TC)
(Dollars)	(Dollars)	(Dollars)	(Dollars)
800	0	35,000	0	-35,000
600
450
150

Given this information, the profit-maximizing price is __ per ticket, and

__ seats out of 100 will be purchased.

In this case, which of the following statements are true about the market at this price–quantity combination? Check all that apply.

A. Profit is positive.

B. Price is less than average total cost.

C. The airline is operating at too big a loss and should, therefore, cancel this flight.

D. Total revenue is greater than variable cost.

If fixed cost decreases to $21,000, does this change the production decision of the airline in the short run?

A. Yes

B. No

True or False: Operating a flight without full capacity should never happen in the short run because it cannot be profitable.

A. True

B. False

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