Question

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should a. sell the ticket because the marginal benefit exceeds the average cost. b. not sell the ticket because the marginal benefit is less than the average cost. c. not sell the ticket because the marginal benefit is less than the marginal cost. d. sell the ticket because the marginal benefit exceeds the marginal cost.

Answer 1

Answer: d. sell the ticket because the marginal benefit exceeds the marginal cost.

Step-by-step explanation:

The marginal benefits exceed the marginal costs in this scenario as the marginal benefit if $300 and the marginal cost is $200.

The company should therefore sell the ticket as they would be making a net marginal benefit of $100. Were it the other way around and the marginal cost was larger, the company should not sell because they would be making a marginal loss.