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 marginal cost. b. sell the ticket because the marginal benefit exceeds the average cost. c. not sell the ticket because the marginal benefit is less than the marginal cost. d. not sell the ticket because the marginal benefit is less than the average cost.

Answer 1

a. sell the ticket because the marginal benefit exceeds the marginal cost.

Step-by-step explanation:

Marginal cost is the cost incurred for an additional unit and Marginal benefit is the amount f benefit received from an additional unit. Net marginal benefit is calculated by deducting marginal cost from marginal benefit.

The company should sell the seats when there s net marginal benefit. In this question the data is given as follow

Marginal cost of each seat = $200

Marginal benefit of each seat = $300

As the net marginal benefit is $100 ($300-$200), so they should sell the tickets.