For the past few months, an airline has had 25% empty seats (unsold roundtrip tickets) on its Boston to New York City route and is deciding whether to change the price of its roundtrip tickets. The costs to the airline of flying between Boston and New York City do not depend on the number of passengers. There are several competing airlines offering the same service between Boston and New York City and there are train and bus options available to travelers as well. Based on this information, your best advice is: A. Keep prices the same. B. Raise prices because total revenues will increase. C. Lower prices because total revenues will increase. D. Either raise or lower prices since total revenues are not being maximized.

For the past few months, an airline has had 25% empty seats (unsold roundtrip tickets) on its Boston to New York City route and is deciding whether to change the price of its roundtrip tickets. The costs to the airline of flying between Boston and New York City do not depend on the number of passengers. There are several competing airlines offering the same service between Boston and New York City and there are train and bus options available to travelers as well. Based on this information, your best advice is: A. Keep prices the same. B. Raise prices because total revenues will increase. C. Lower prices because total revenues will increase. D. Either raise or lower prices since total revenues are not being maximized.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter13: Positive Externalities And Public Goods

Section: Chapter Questions

Problem 23P: HighFlyer Airlines wants to build new airplanes with greatly increased cabin space. This will allow...

See similar textbooks

Similar questions

Would you rather have efficiency or variety? That is, one opportunity cost of the variety of products we have is that each product costs more per unit than if there were only one kind of product of a given type, like shoes. Perhaps a better question is, What is the right amount of variety? Can there be too many varieties of shoes, for example?
Dataware is trying to determine whether to give a $10 rebate, cut the price $6, or have no price change on a software product. Currently, 40,000 units of the product are sold each week for $45 apiece. The variable cost ofthe product is $5. The most likely case appears to bethat a $10 rebate will increase sales 30%, and half of all people will claim the rebate. For the price cut, the most likely case is that sales will increase 20%.a. Given all other assumptions, what increase in sales from the rebate would make the rebate and price cut equally desirable?b. Dataware does not really know the increase in sales that will result from a rebate or price cut. However, the company is sure that the rebate will increase sales by between 15% and 40% and that the pricecut will increase sales by between 10% and 30%.Perform a sensitivity analysis that could be used to help determine Dataware’s best decision.
Question Google is considering an advertising campaign that is expected to increase the sales of its Pixel phone by 20%. Suppose that currently Google sells 1,000,000 units at $500 per unit and the variable cost per unit is $300. If the cost of the advertising campaign is $50 million, will Google find it acceptable? Question An attractive feature of new cell phones that was introduce d in recent years is that you can switch carriers easily with the same device. How does this feature affect demand for wireless phone services? What are the likely effects on the demand that a particular US carrier is facing? Are there any elasticities that were likely to be affected?
Kayla and Kevin are friends who go together to a used textbook seller who has two copies ofthe biology book that they both need for their class this semester. The cost to the seller ofacquiring the books was $25 each and no other students will need this book. Kayla states thatshe is willing to pay $40 for the book, while Kevin says he is willing to pay $80. Which ofthe following describes the most likely conclusion to this scenario? Group of answer choices The seller will sell the books to both Kayla and Kevin for $40 each because if they tried tocharge Kevin a higher price, Kayla would engage in arbitrage. The seller will sell one book to Kayla for $40 and one book to Kevin for $80 because thismarket meets all three requirements for price discrimination. The seller will sell the books to both Kayla and Kevin for $80 each because Kevin's highervalue exceeds Kayla's willingness to pay. The seller will sell the books to both Kayla and Kevin for $25 each because that is howmuch the…
A local company is planning to manufacture and market a four-slice toaster. For this toaster, the research department’s estimates are aweekly demand of 300 toasters at a price of $25 per toaster and a weekly demand of 400 toasters at a price of $20. The financial department’s estimates are fixed weekly costs of$5,000 and variable costs of $5 per toaster. a) Assume that the relationship between price ? and demand ? is linear. Use the research department’s estimates to express ? as a function of ? and determine the domain of the function. b) Using your knowledge from Finite Math, determine the Revenue function in terms of ?. c) Determine the Marginal Revenue at 2 different production levels for example 250 and 500 units. Interpret these results. (HINT: Consider what a positive or negative first derivative implies) d) Assume that the cost function is linear. Use the financial department’s estimates to express the cost function interms of ?. e) Determinethe Marginal costand interpret the…
Karen goes to the casino with 1000$ and plays the following strategy: In her first game, she putsin 1$. If she wins, she finishes playing and takes her profit home. If she looses a game, she willplay another game and put in twice as much money as she did in the previous game. If she wins,she will finish playing and take her profits home. She will keep going with that strategy, untilshe either wins a game or runs out of money.(a) Create a table for n = 1, 2, ..., 10 which lists: (a) The amount of money she puts in in game n;(b) the sum of the amount of money she has put in in all games up to this game n; and (c)her overall profit if the game n is the first game she wins.(b) What is the likelihood of her loosing 8 games in a row?(c) How many games can she loose in a row before she cannot afford to continue with herstrategy of doubling her bet?(d) Given the low likelihood of loosing, is this a smart strategy for Karen to pursue?
COURSE: MICROECONOMICS - Cournot Model:In the market for a given good there are only 2 firms satisfying the demand, and their respective total cost functions respond to the form: CTi = 10Qi + 5 and the demand is estimated to be: P = 31 - QIf the decision variable for both firms is that the quantity they will produce and realize will be decided simultaneously it is asked to:(a) calculate the profit and reaction function of each firmb) graph market equilibriumc) calculate the profits that both companies will obtain in equilibrium
Hau Lee Furniture, Inc., spends 60% of its sales dollars in the supply chain and has a current gross profit of $10,000. Hau wishes to increase gross profit by $5,000 (50%). He would like to compare two strategies: reducing material costs vs. increasing sales. The current material costs and production costs are 60% and 20%, respectively, of sales dollars, with fixed cost at a constant $10,000. Analysis indicates that an improvement in the supply chain that would reduce material costs by 8.3% ($5,000/$60,000) would produce a 50% net profit gain for Hau, whereas a much larger 25% increase in sales ($25,000/$100,000) would be required to produce the same result. Now Hau finds its current profit of $10,000 inadequate. The bank is insisting on an improved profit picture prior to approval of a loan for some new equipment. Hau would like to improve the profit line to $25,000 so he can obtain the bank’s approval for the loanWhat percentage improvement is needed in the supply chain strategy for…
You are the manager of a small pharmaceutical company that received a patent on a new drug that enhancethe immune system three years ago. Despite strong sales (GH¢125 million last year) and a low marginal costof producing the product (GH¢0.25 per pill), your company has yet to show a profit from selling the drug.This is, in part, due to the fact that the company spent GH¢1.2 billion developing the drug and obtainingFood and Drugs Authority approval. An economist has estimated that, at the current price of GH¢1.25 perpill, the own price elasticity of demand for the drug is -2.5. Based on this information, what can you do toboost profits? Explain.
COURSE: MICROECONOMICS - Stackelberg ModelIn a given market good there are only 2 firms that satisfy the demand, and their respective total cost functions are: CTi = 400 and the demand that is estimated is P = 120 - 2QIf the exception variable of both firms is the quantity they will produce, such that the decisions to produce are made sequentially firm number 1 will be the leader who decides the quantity to produce and firm number 2 (follower) decides based on the production of firm number 1, we ask:(a) quantity produced by each firm and its equilibrium price in the market.(b) Profit of each company at equilibrium and (c) Graph your results
Consider a small town with two competing restaurants: Doug’s Diner and Betty’s Bistro. There is 1000profit to be made in the market. Each period, the restaurants simultaneously decide whether to offer high orlow quality food. In order to offer high quality food, each restaurant must hire an expert chef, which incursan additional cost of 100. The restaurants split the profit equally if they offer the same quality of food. Ifone restaurant offers high quality food while the other offers low quality food, the high quality restauranttakes four fifths of the profit and the low quality restaurant takes one fifth of the profit.(a) Draw up the normal form game matrix, showing the players, strategies, and payoffs.(b) Determine the Nash equilibrium of this game.(c) Explain how the restaurant owners could both be better off than in the Nash equilibrium if they wereable to cooperate. Is the town as a whole better off or worse off when the firms cooperate? Why or whynot
1) a) Solve the following inequalities:(i) 5(11 − ?) < ? + 49 (ii) 7? − 3 <10m + 23< 8 − 5m (iii) ?2 ≥ 15 − 2? b) The cost structure for iPhones are as follows, fixed cost of $25 and variable cost perunit of $2. The associated demand function isp = 20 − q .(i) Obtain an expression for the profit, π(q). (ii) Find the range of output which gives a profit of at least $31. c) Use Microsoft Word or Excel to solve the system of linear inequalities:r + 5t ≤ 57t – 2r ≤ 4 r ≥ 0(NB: clearly identify the solution set by placing a BIG enough ‘S’ to coverthat entire region).