Question

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should a. sell the ticket because the marginal benefit exceeds the marginal cost. D. not sell the ticket because the marginal benefit is less than the marginal cost c.not sell the ticket because the marginal benefit is less than the average cost. O d. sell the ticket because the marginal benefit exceeds the average cost

Answer 1

Question 1) The marginal cost is $200 and the marginal revenue is $300, so the airline should sell the ticket because the marginal benefit exceeds the marginal cost and by doing so, they would earn a profit of $100. So, option a is the correct answer.

Question 2) Monopoly firms face a downward sloping demand curves, so they can sell only the specific price quantity combinations that lie on the demand curve. So, option b is the correct answer.

Question 3) If a retailer charges less than $150 and violate its contract with South Face, then the economists will call this business practice as Predatory pricing. So, option a is the correct answer.

Question 4) If the demand for a good falls when income falls, then the good is called a normal good. If a good is a normal good, then the demand of the good is directly proportional to the income, that is, if the income increases demand increases and if the income falls, the demand would fall. So, option b is the correct answer.

Question 5) The demand for the oranges would be exactly 7, if the price of each orange is between $0.25 and $0.60. So, option 3 is the correct answer.

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