An Airline Has Requests for Standby Flights at Half of the Usual

question 259

Essay

An airline has requests for standby flights at half of the usual one-way air fare. Past experience has shown that these passengers have about a 1 in 5 chance of getting on the standby flight. When they fail to get on a flight as a standby, the only other choice is to fly first class on the next flight out. Suppose that the usual one-way air fare to a certain city is $158 and the cost of flying first class is $385. Should a passenger who wishes to fly to this city opt to fly as a standby? [Hint: Find the expected cost of the trip for a person flying
standby.]

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Definitions:

Current Ratio

A financial metric used to evaluate a company's ability to pay short-term obligations with its short-term assets.

Current Assets

Short-term resources expected to be converted into cash within one year, including cash, inventory, and accounts receivable.

Current Liabilities

Obligations or debts that a company is expected to pay off within one year or within its normal operating cycle, whichever is longer.

Creditor's Decision

The process through which a creditor analyzes the financial stability and creditworthiness of potential borrowers before lending money.