Question

Elizabeth Airlines​ (EA) flies only one​ route: Chicagolong dash—Honolulu. The demand for each flight​ is: Upper Q equals 500 minus Upper PQ=500−P. ​EA's cost of running each flight is​ $30,000 plus ​ $100 per passenger. What is the​ profit-maximizing price that EA will​ charge? How many people will be on each​ flight? What is​ EA's profit for each​ flight? ​(round all answers to a whole​ number)

Answer 1

Profit-maximizing price = $300

People on flight = 200 people per flight

Profit for each flight = $10,000

Step-by-step explanation:

As per the data given in the question,

Demand curve in inverse form:

P = 500 - Q

We know that marginal revenue curve for a linear demand curve will twice the slope,

So Marginal Revenue= 500 - 2Q

Marginal cost of carrying per passenger = $100

To determine profit maximizing quantity, Equating Marginal Revenue to Marginal Cost

Let the people on each flight be Q, then

500 - 2Q = 100

Q = 200 people per flight

Substituting the value Q in demand equation to find profit maximizing price for each ticket

Profit Maximizing price (P) = $500 - $200

= $300

Profit for each flight = Total Revenue - Total Cost

= (300) (200) - (30,000 + (200) (100) )

= $10,000 per flight