If There Are Open First-Class Seats Available on a Particular

question 35

Multiple Choice

If there are open first-class seats available on a particular flight, some airlines allow customers with coach (discount) tickets to upgrade to first-class tickets during the electronic check-in process. Suppose the regular price of a first-class ticket is $800, the total price of the upgrade ticket (original price plus the upgrade) is $400, the marginal cost of serving both types of customers (full-fare and upgrade first-class flyers) is $100, and the airline maximizes profits. Which of the following statements is true?

• A) MR for the full-fare customers must be higher than the MR from upgrade customers.
• B) MR for the full-fare customers may be higher or lower than the MR from upgrades.
• C) MR = MC for the full-fare customers, but the airline is willing to collect any positive amount from the upgrade customers.
• D) MR must be the same for both full-fare and upgrade customers.

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Definitions:

Cash Flows

represent the net amount of cash and cash-equivalents being transferred into and out of a business.

Zero-Interest Financing

Zero-Interest Financing is a loan or credit offer with a 0% interest rate for a set period, making purchases more affordable upfront but often requiring a good credit score.

APR

Annual Percentage Rate, which represents the annualized cost of credit including interest and fees, making it easier to compare loan products.

Growing Annuity

A series of periodic payments that grow at a constant rate for a specific number of periods.