Answer to Question #290889 in Microeconomics for Shrimathi

Question

Indian Airlines have a capacity to carry a maximum of 10.000 passengers per month from

Calcutta to Guhawati at a fare of Rs. 500. Variable costs are Rs. 100 per passenger and fixed

costs are Rs. 30,000 per month. How many passengers should be carried per month to break

even

Answer 1

Solution:

Break-even units = Fixed Costs ÷ Contribution Margin

Contribution Margin = Revenue per unit – Variable Costs per unit = 500 – 100 = 400

Fixed Costs = 30,000

Break-even units = 30,000 ÷ 400 = 75 passengers

To break even, 75 passengers per month should be carried.