Question

given:

no of tickets: 200

Cost per ticket: \$175

Employee Cost: Pilot-500; Co pilot- 500; Flight attendant: 200

Cost of fuel: 10,000

Cost per meal: 5

Cost of catering per meal: 1

Part 1

Airline’s income through ticket: 200*175= \$35,000

Airline’s revenue through in-flight purchases= cost per meal -cost of catering

= 5-1

= 4

Therefore total revenue through inflight purchases= Total purchases*cost

= 100*4

= 400

The airlines fixed cost with one flight attendant= Pilot+co-pilot+1 flight Attendant+ fuel cost

= 500+500+200+10000

= 11,200

Firm’s profit with 3 flight attendants

Profit = Income -expenditure

= revenue from tickets+ revenue from meals/inflight purchase-Pilot+co-pilot+3 flight Attendant+ fuel cost

= 35000+400-500+500+600+10,000

=35,400-11,600

Profit =\$ 23,500/-

Part 2

1. The profit will decrease because the rise in the fuel prices will lead to an increase in the fixed cost of the firm per flight

2. The profit will increase. Increased demand can indicate the that the company can charge a higher price per ticket which will increase the revenues earned keeping the fixed costs of the company same.

3. The profit will decrease. This will happen because the new company may charge a lower fare to attract customers which could cause the existing firm to reduce prices. Also, the new company would mean that the total volume will be divided among the 2 flight firms.

4. The profits will decrease as the cost of the company per flight will increase due to a rise in the wages of pilots and co-pilots which will increase the cost of the company per flight.

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