Answer to Question #293305 in Economics of Enterprise for Esi

Question

Suppose it costs XYZ Airline 120,000 dollars to fly its 500 - seater A380 passenger plane from Dubai to London. The flight service does not include drinks/meal. The passengers pay for food and drinks separately on demand.   

(a): What is the average cost of a Dubai – London seat on this plane?

(b): Currently XYZ airline charges 550 dollars for a Dubai-London ticket (economy) on this plane. Suppose 10 economy seats are left unsold when the plane is starting to board the passengers. A standby passenger offers to pay 250 dollars for a seat. Should the airline sell the ticket to this passenger at 250$? Yes or No? Briefly explain your reason.  

Answer 1

a). Average cost of the seat = total cost of the flight/Number of seats

= $120000/500

$240

(b). Yes. This is because the Airline will reduce the number of empty seats by making an extra $250.