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# Question: 2. Understanding the role of fixed cost in the short run Consider an airline’s decision about whether to cancel

Question: 2. Understanding the role of fixed cost in the short run Consider an airline’s decision about whether to cancel a particular flight that hasn’t sold out. The following table provides data on the total cost of operating a 100-seat plane for various numbers of passengers.2. Understanding the role of fixed cost in the short run
Consider an airline’s decision about whether to cancel a particular flight that hasn’t sold out. The following table provides data on the total cost of operating a 100-seat plane for various numbers of passengers.
Number of Passengers
Total Cost
(Dollars per flight)
0 40,000 10 60,000 20 65,000 30 68,000 40 70,000 50 71,000 60 72,500 70 73,500 80 74,000 90 74,300 100 74,500 Given the information presented in the previous table, the fixed cost to operate this flight is

.
At each ticket price, a different number of consumers will be willing to purchase tickets for this flight. Assume that the price of a flight is fixed for the duration of ticket sales. Use the previous table as well as the following demand schedule to complete the questions that follow.
Price
Quantity Demanded
(Dollars per ticket)
(Tickets per flight)
1,000 0 700 30 400 90 200 100 Complete the following table by computing total revenue, total cost, variable cost, and profit for each of the prices listed. (Hint: Be sure to enter a minus sign before the number if the numeric value of an entry is negative.)
Price
Total Revenue
Total Cost
Variable Cost
Profit
(Dollars per ticket)
(TR)
(TC)
(VC)
(TR–TC)
(Dollars)
(Dollars)
(Dollars)
(Dollars)
1,000 0 40,000 0 -40,000 700

400

200

Given this information, the profit-maximizing price is (200/400/700/1000) per ticket, and seats out of 100 will be purchased.
In this case, which of the following statements are true about the market at this price–quantity combination? Check all that apply.
-Profit is negative.
-Price is greater than average total cost.
-the airline is operating at too big a loss and should, therefore, cancel this flight.
-Total revenue is greater than variable cost.

If fixed cost increases to \$59,500, does this change the production decision of the airline in the short run?
Yes
No

True or False: The decision to operate a flight in the short run depends on the relationship between total revenue and variable cost.
True
False

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