Suppose an airline is losing money because they cannot fill enough seats in thei

Question

Suppose an airline is losing money because they cannot fill enough seats in their flights with passengers. The airline would offer a flight only if at least 70% of the seats could be filled. The average total cost for the typical flight is $12,600. Of this amount, $3,700 is the cost of the firm’s fixed inputs and $8,900 is the cost of its variables inputs. The average variable cost remains the same no matter how many flights are offered. The airline flies 60 seat jets and charges $300 per ticket. The market where the firm operates can be viewed as perfectly competitive.

What is the marginal cost of a flight?

Suppose an airline is losing money because they cannot fill enough seats in their flights with passengers. The airline would offer a flight only if at least 70% of the seats could be filled. The average total cost for the typical flight is $12,600. Of this amount, $3,700 is the cost of the firm’s fixed inputs and $8,900 is the cost of its variables inputs. The average variable cost remains the same no matter how many flights are offered. The airline flies 60 seat jets and charges $300 per ticket. The market where the firm operates can be viewed as perfectly competitive.

What is the marginal cost of a flight?

Explanation / Answer

Marginal cost is the change in total cost that arises when the quantity produced is incremented by one unit. It is the cost of producing one more unit.

The marginal cost of a flight would be $ 8,900.

Since the variable cost remains the same for all the flights therefore one more flight would cost $8,900 as marginal cost.

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