Question

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. The airline should sell a ticket to a standby passenger only if the passenger is willing to pay
a. more than $300.
b. more than $200.
c. more than $500.
d. This cannot be determined from the information given.

Answer 1

Answer:

C) more than $500.

Explanation:

The marginal cost of flying an extra passenger is $500 (= $100,000 / 200). So the airline should sell tickets to standby passengers if they are willing to pay least at $500 per ticket. The airline should sell tickets As long as the marginal revenue is ≥ than the marginal cost.