Question

10. Understanding the role of fixed cost in the short run A Aa 3 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 Passengers 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 Given the information presented in the previous table, the fixed cost to operate this flight is

Answer 1

Fixed cost is $25,000 as this is the cost when quantity demanded is 0.

Price	Quantity demanded	Total Revenue $	Total Cost $	Fixed Cost $	Variable Cost $	Profit	If FC is $39,000
(Dollars per ticket)	(Tickets)	( P x Q)			( TC-FC)	(TR-TC)
700	0	0	25000	25000	0	-25000	39000
550	40	22000	45000	25000	20000	-23000	39000
200	60	12000	47000	25000	22000	-35000	39000
100	100	10000	48100	25000	23100	-38100	39000
The profit maximizing or loss minimizing price is $550 per ticket and 40 out of 100 tickets will be purchased.
When price is $550, ATC= $45,000/40=$1125
1.No, if the airlines does not operate the loss will be higher at $25,000, which is the FC.
2.No, it is a loss as TR is less than TC.
3.Yes, ATC is $1125 and price is $550.
4.Yes, TR is > VC.
No, as VC costs are covered.
False, as long as VC are covered, the airlines can operate.