Question

2. Understanding the role of fixed cost in the short run Aa Aa Consider an airline's decision about whether or not to cancel a particular flight that hasn't sold out. The following table provides data on the total cost of operating a 100-seat plane for various numbers of passengers Number of Total Cost (TC) 25,000 35,000 40,000 43,000 45,000 46,000 47,000 47,700 48,000 48,200 48,100 Passengers 10 20 30 40 50 60 70 80 90 100 Given the information presented in the previous table, the total fixed cost to operate this flight is $25,000 At each ticket price, a different number of consumers will be willing to purchase tickets for this flight. Use the following demand schedule to complete the questions that follow:
Can anyone check my answer?

Answer 1

Fixed cost = total cost when 0 tickets are sold = 25,000 ---------------------> CORRECT

The airlines makes a maximum profit when tickets are sold for 550 dollars and 40 seats are sold ( -23,000 is a greater value than values of profits at other ticket prices i.e, -25,000, -35,000 and -38,100) --------------------> CORRECT

Statements that are true about the market at this price-quantity combination --------------------> CORRECT

First statement is false because all the profit figures are negative

Second statement is marked as true (i.e. price is less than average total cost) as can be observed from the table

Third statement is true for only 3 out of 4 cases (for prices 550, 200 and 100. for price 700, TR= TVC)

Fourth statement is false because the company should not stop operating in the short run unless total revenue falls below total variable cost, but in all cases, TR is greater than or equal to TVC)

If fixed cost increases to 43,000 --------------------> INCORRECT

It is answered INCORRECTLY as 'yes' for production design changing,

THE ANSWER IS 'NO' because the production will continue as the same in the short run for this case as profits will just decrease by 18,000 each. TR will still be more than or equal to TVC in each case and profit will be maximum at ticket price 550 just like before.

Following table shows the change in profits, TR and TVC stay the same when fixed costs change. TFC (total fixed costs) and TC change with change in fixed costs.

with TFC 25000 with TFC 43000 priceTRTVC TFC TC Profit TR-TCTFC TC Profit -TR-TC 43,000 41,000 -53,000 -56,100 0025,000 25,000 25,000 43,00043,000 550 22,000 20,000 25,000 45,000 23,00043,000 20012,000 22,000 25,000 47,000 100 10,000 23,100 25,000 48,100 35,000 43,00065,000 -38,100 43,00066,100

Decision to operate flight in short run -------------------------CORRECT

The answer is correct. it does depend on the relationship between TR and TVC. production is carried on until TR is greater than or equal to TVC and shuts down when TR falls below TVC