Question
American Airlines has $100 variable cost on $500 coach class three-week advance-purchase seats from New York to Florida. The company is quite conscious of their
American Airlines has $100 variable cost on $500 coach class three-week advance-purchase seats from New York to Florida. The company is quite conscious of their need to sustain cumulative operating profits in order to cover their very high fixed costs of pilot crews, capital equipment leases, and hub airports.
a) The product team proposes to discount these NY-Fla routes with a 5% price cut to $475. Variable costs remain $100. What "break point" percentage increase in unit sales of American seats must occur in response to the 5% price cut in order to maintain cumulative operating profits?
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