Airlines Seek Out New Ways to Save on Fuel as Costs Soar The financial pain of higher fuel prices is particularly acute for airlines because it is their single biggest expense. Airlines pump about 7,000 gallons into a Boeing 737 and about 60,000 gallons into the bigger 747 jet. Each generation of aircraft is more efficient: An Airbus A330 long-range jet uses 38 percent less fuel than the DC-10 it replaced, while the Airbus A319 medium-range jet is 27 percent more efficient than the DC-9 it replaced.

Source: The New York Times, June 11, 2008

a. Is the price of fuel a fixed cost or a variable cost for an airline?

b. Explain how an increase in the price of fuel changes an airline’s total costs, average costs, and marginal cost.

c. Draw a graph to show the effects of an increase in the price of fuel on an airline’s TFC, TVC, AFC, AVC, and MC curves.

d. Explain how a technological advance that makes an airplane engine more fuel efficient changes an airline’s total product, marginal product, and average product.

e. Draw a graph to illustrate the effects of a more fuel-efficient aircraft on an airline’s TP, MP, and AP curves.

f. Explain how a technological advance that makes an airplane engine more fuel efficient changes an airline’s average variable cost, marginal cost, and average total cost.

g. Draw a graph to illustrate how a technological advance that makes an airplane engine more fuel efficient changes an airline’s AVC, MC, and ATC curves.