Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 7: Problem 7

The cost of flying a passenger plane from point \(A\) to point \(B\) is \(\$ 50,000\). The airline flies this route four times per day at \(7 \mathrm{AM}, 10 \mathrm{AM}, 1 \mathrm{PM}\), and \(4 \mathrm{PM}\). The first and last flights are filled to capacity with 240 people. The second and third flights are only half full. Find the average cost per passenger for each flight. Suppose the airline hires you as a marketing consultant and wants to know which type of customer it should try to attract-the off-peak customer (the middle two flights) or the rush-hour customer (the first and last flights). What advice would you offer?

Short Answer

Expert verified
The average cost per passenger for each flight is approximately $277.78. The average cost per passenger is less for rush-hour flights (around $208.33) as compared to off-peak flights (around $416.67). Therefore, it would be more cost-effective for the airline to attract more rush-hour customers.

Step by step solution

01

Calculate the Total Passengers each day

First calculate the total number of passengers each day. The first and last flights are filled to capacity with 240 passengers each, that's 480 passengers. The second and third flights are only half full, which means 120 passengers each, so that's 240 passengers. So, total passengers each day is 480 + 240 = 720.
02

Calculate the Total Cost each day

Every flight costs $50,000, so since there are 4 flights each day, the total cost is $50,000 * 4 = $200,000.
03

Calculate the Average Cost per Passenger

Now, calculate the average cost per passenger. That is the total cost divided by the total number of passengers, so $200,000/720 = $277.78 approximately.
04

Calculate the average cost per passenger for Rush hour and Off-peak flights

For rush-hour flights (first and last flights), the number of passengers is 240 each. So, the average cost per passenger would be $50,000/240 = $208.33 approximately. For the off-peak flights (second and third flights), the number of passengers is 120 each. So, the average cost per passenger would be $50,000/120 = $416.67 approximately.
05

Offer advice to the airline

Looking at the average cost per passenger for each type of flight, it costs the airline less per passenger to fly during rush hour than off-peak. The airline should therefore try to attract more rush-hour customers as it would be more cost-effective.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Suppose the long-run total cost function for an industry is given by the cubic equation \(\mathrm{TC}=\mathrm{a}+\mathrm{bq}+\mathrm{cq}^{2}+\mathrm{d} q^{3}\) Show (using calculus) that this total cost function is consistent with a U-shaped average cost curve for at least some values of \(a, b, c,\) and \(d\).

Joe quits his computer programming job, where he was earning a salary of \(\$ 50,000\) per year, to start his own computer software business in a building that he owns and was previously renting out for \(\$ 24,000\) per year. In his first year of business he has the following expenses: salary paid to himself, \(\$ 40,000 ;\) rent, \(\$ 0 ;\) other expenses, \(\$ 25,000 .\) Find the accounting cost and the economic cost associated with Joe's computer software business.

Suppose the economy takes a downturn, and that labor costs fall by 50 percent and are expected to stay at that level for a long time. Show graphically how this change in the relative price of labor and capital affects the firm's expansion path.

A chair manufacturer hires its assembly-line labor for \(\$ 30\) an hour and calculates that the rental cost of its machinery is \(\$ 15\) per hour. Suppose that a chair can be produced using 4 hours of labor or machinery in any combination. If the firm is currently using 3 hours of labor for each hour of machine time, is it minimizing its costs of production? If so, why? If not, how can it improve the situation? Graphically illustrate the isoquant and the two isocost lines for the current combination of labor and capital and for the optimal combination of labor and capital.

Suppose a firm must pay an annual tax, which is a fixed sum, independent of whether it produces any output. a. How does this tax affect the firm's fixed, marginal, and average costs? b. Now suppose the firm is charged a tax that is proportional to the number of items it produces. Again, how does this tax affect the firm's fixed, marginal, and average costs?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free