FARE 1300 Lecture 16: week 8; political economy of undernut.doc
5. As the exclusive carrier on a local air route, a regionalairline must determine the number of flights it will provide perweek and the fare it will charge. The estimated cost per flight is$2,000. It expects to fly full flights (100 passengers), somarginal cost (on a per passenger basis) is $20.. The airlineâsestimated demand curve is P = 120 â 0.1Q, where P is the fare indollars and Q is the number of passengers per week
a. What is the airlineâs profit maximizing fare? How manypassengers does it carry per week, using how many flights? What isits weekly profit?
b. Suppose the airline is offered $4000 per week to haul freightalong the route for a local firm. This will mean replacing one ofthe weekly passenger flights with a freight flight (at the sameoperating cost). Should the airline carry freight for the localfirm? Explain
FLY-BY AIRLINES HAS A ROUND TRIP FLIGHT BETWEEN MINNEAPOLIS AND CHICAGO. THE PLANE FOR THE FLIGHT HOLDS OVER 200 PASSENGERS.
Currently, the fare is $100 and they fly 200 passengers per day. The
Total Revenue (TR) of the flight equals ____________________________.
If they increase the fare by 10% to $110, only 190 passengers buy tickets. The TR becomes $____________. Because the TR ___________, we can say that demand for the flight is _____________________________.
On the other hand, if the $10 increase in fare caused a decline to only 150 passengers, the TR would become $__________________________, and we would say that the demand was ___________________________.
The third possibility is that the fare increase would result in sales of 182 tickets. In this case, the TR would be $20,020