Question
An airline maintains a daily schedule between San Francisco and Honolulu. The airplanes used for this route have a seating capacity of 180. The fixed
An airline maintains a daily schedule between San Francisco and Honolulu. The airplanes used for this route have a seating capacity of 180. The fixed cost of making a one-way flight between the two cities is $8,000. It includes the cost of gasoline, wages, landing fees, and other lump sum expenses connected with the flight, but it does not include the general overhead expenses of the airline. The average ticket price is $120. The unit variable cost is $20, which includes the cost of a meal, drinks, refreshments, etc. a) What is the break even volume for the flight? b) If the total fixed cost increases by $2,000, what will happen to the break-even volume? c) Assuming fixed costs are still $8,000, what is the effect of a $10 increase in ticket price? d) If demand is = 400 - 2p (where p is the average ticket price), what average ticket price will maximize profits, and what is the net profit at this point?
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