16 Question (8 points) See page 246 Aregional airline sells 200 tickets to New Y
ID: 1117436 • Letter: 1
Question
16 Question (8 points) See page 246 Aregional airline sells 200 tickets to New York City for an average price of $ 175 one way. Half of the people on the flight will purchase a meal for $7. The airline's employee costs per flight include $500 each for the pilot and copilot, and $200 for each flight attendant. The law requires airlines to have at least one pilot, copilot, and flight attendant for each flight. Fuel for the flight is expected to cost $10000, and the cost of catering food is $1 for each item purchased. 1st attempt Part 1 (4 points) See Hint The airline earns | in revenue from tickets and $ from in-flight purchases. If one flight attendant is staffed for the flight, the airline pays $ If the airline has three flight attendants for the flight, the firm earns in fixed costs. $ profit.Explanation / Answer
16.
Part 1:
Airline earns:
Revenue from tickets = 200*175 = $35000
Revenue from in-flight purchase = 100*7 = $700
If one flight attendant is staffed,
Airline pays = $200 ( in fixed cost)
If three flight attendants are there on flight,
Total cost of the staff = Cost of one pilot + cost of copilot + 3 flight attendants
Total cost of the staff = 500+500+3*200 = $1600
Cost of fuel = $10000
Total variable cost of food = 100*1 = $100
Total cost = total fixed cost + total variable cost = 1600+10000+100 = $11700
Total cost = $11700
Then,
Profit = Total revenue – total cost = (35000+700) – 11700
Profit = $24000
Part 2:
Scenario 1: Profit decreases
Increase in the cost of fuel, will decrease the profit.
Scenario 2: Profit increases
More seats will be booked as demand to visit the New York will increase. But, fixed cost will not change.
Scenario 3: Profit decreases
Due to competition, supply will increase and price of the flight will come down. Besides, lesser no of seats will be booked.
Scenario 4: Profit decreases
Higher wages will increase the cost, so it will negatively affect the profit.
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