Question

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 airline’sestimated demand curve is P = 120 – 0.1Q, where P is the fare indollars and Q is the number of passengers per week
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a. What is the airline’s 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