Leopold Bus Company runs daily service betweenBig-cityandTinytown. It calculates that the average cost per trip (wages, gas, insurance, payments on loans, etc.) is $140. Leopold sells the bus tickets for $5 each. The buses hold 40people butare usually just three-quarters full. Leopold is considering offering half-rate tickets to students, on a standby basis.

a)Will the sales of the standby tickets cover the average costs of the extra passengers?

b)Will the sales of the standby tickets cover the marginal costs of the extra passengers?

c)Should Leopold proceed with the plan? Why?

d)Can you think of circumstances under which it would be unwise to offer the standby tickets?