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.
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.