Scenario 15-5 An Airline Knows That There Are Two Types of Travelers

question 253

Multiple Choice

Scenario 15-5
An airline knows that there are two types of travelers: business travelers and vacationers. For a particular flight, there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc.
-Refer to Scenario 15-5. How much profit will the airline earn if it sets the price of each ticket at $300?

• A)-$15,000
• B)-$5,000
• C)$25,000
• D)$45,000

Understand how market forces of demand and supply affect short-run and long-run market prices and quantities.

Apply knowledge of cost functions to calculate optimal output and understand its implications on a firm’s profitability.

Recognize the conditions necessary for long-run equilibrium under perfect competition and the implications for firm entry and exit.

Identify and explain the differences among constant-cost, increasing-cost, and decreasing-cost industries and their impact on market equilibrium.

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Definitions:

Working Capital

The disparity between an enterprise's existing assets and current debts, demonstrating its short-term financial status and operational performance.

Discount Rate

In discounted cash flow analysis, the interest rate that is used to evaluate the present value of anticipated cash flows.

Net Present Value

Net Present Value (NPV) is a financial metric that calculates the total value today of a series of future cash flows, adjusting for the time value of money.

Capital Budgeting

The process of planning and managing a company's long-term investments in major projects or assets.