Question

Marginal airlines runs 10 flights per day at a total cost of 40,000, including25,000 in fixed costs for airport fees and the reservation system and 15,000 for flight crews and food service. If an 11th flight would have 25 passengers, each paying90, would it be sensible to run the flight?

1) Yes
2) No

Answer 1

Operating the 11th flight generates $2,250 in revenue while incurring $1,500 in costs, hence it is sensible for Marginal Airlines to run the flight as it adds to covering fixed costs and profit.

Step-by-step explanation:

To determine if it would be sensible for Marginal Airlines to run an 11th flight, we must analyze the additional revenue generated by this flight in comparison to the marginal costs associated with it. The 11th flight would bring in 25 passengers, with each paying $90, resulting in a total revenue of 25 x $90 = $2,250. Given that the question doesn't provide specifics on the variable costs for adding an additional flight, we assume that the primary variable costs remain the same as the earlier 10 flights, which is $15,000 divided by 10 equaling $1,500 for each flight. Therefore, the extra cost for the 11th flight is $1,500. Since the additional revenue ($2,250) is greater than the marginal cost ($1,500), it will contribute to covering the fixed costs and potentially provide additional profit. Hence, it would be sensible for Marginal Airlines to operate the 11th flight.