Question

A regional airline sells 200 tickets to New York City for an average price of \$ 175 one way. Half of the people on the flight will purchase a meal for \$7.

The airline’s employee costs per flight include \$500 each for the pilot and copilot, and \$200 for each flight attendant. The law requires airlines to have at least one pilot, copilot, and flight attendant for each flight. Fuel for the flight is expected to cost \$10,000, and the cost of catering food is \$1 for each item purchased.

1st attempt

Part 1   (4 points)

See Hint

The airline earns    \$    in revenue from tickets and   \$   from in-flight purchases.

If one flight attendant is staffed for the flight, the airline pays    \$    in fixed costs.

If the airline has three flight attendants for the flight, the firm earns    \$    profit.

Part 2   (4 points)

See Hint

What happens to profit in each of the following scenarios, given the information in Part 1 above?

 Scenario Change in Profit 1. An unexpected fuel shortage results in an increase in the price of fuel for the foreseeable future. 2. A large conference is announced in New York, which results in an increase in demand for seats on flights to New York. 3. A competing airline opens a route, which increases the supply of flights to New York City. 4. The pilots' union negotiates higher wages for pilots and copilots.

1. The airline earns \$35000 in revenue from tickets and \$70 from in-flight purchases.

Explanation:

Revenue from tickets = 200*175 = 35,000

Revenue from in-flight purchases = (1/2)*200*7 = 700

2. If one flight attendant is staffed for the flight, the airline pays \$10,000 in fixed costs.

Explanation:

Fixed cost - if Fuel for the flight is expected to cost \$10,000

3.If the airline has three flight attendants for the flight, the firm earns \$24000 profit.

Explanation:

Profit = TR - TC

TR = 35000 + 700 = 35700

TC = 500+ 500 + 10,000 + 100*1 + 200Q = 11100 + 200Q [ Q = flight attendant]

For Q = 3,

TR - TC = 35700 - 11100 - 200*3 = 24000

----

Part 2:

 Scenario Change in Profit 1. An unexpected fuel shortage results in an increase in the price of fuel for the foreseeable future. Decrease [cost increases.] 2. A large conference is announced in New York, which results in an increase in demand for seats on flights to New York. Increases 3. A competing airline opens a route, which increases the supply of flights to New York City. decrease 4. The pilots' union negotiates higher wages for pilots and copilots. Decrease

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