2. Understanding the role of fixed cost in the short run aa Aa Consider an airline's decision about whether or not to cancel a particular fight 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 Total Cost Passengers (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 total fixed cost to operate this fight is Explanation: $40,000 ¥ Open v [At each ticket price, a different number of consumers willbe willing to purchase tickets for this flight. Use the following demand schedule to complete the questions that follow: Price (Dollars per ticket) 41,000 700 400 200 Quantity Demanded ° 30 90 100 (Tickets per flight) Assume that the price of a flight is fixed for the duration of ticket sales. Complete the following table by computing total revenue, total cost, total variable cost, and profit for each of the prices listed. (Hint: Be sure to enter @ minus sign before the number if the numeric value of an entry is negative.) Price Total Revenue Total Cost Total Variable Profit (ollars per ticket) (Dollars per flight) (Dollars per flight) Cost (TVC) _(Dollars per flight) 1,000 ° 40,000 ° 40,000 v 700 21,000 68,000 28,000 47,000 v 400 36,000 74,300 34,300 38,300 v 200 20,000 74,500 34,500 54,500 v Explanation: Open v Given this information, the profit-maximizing price is Explanation: $400_V per ticket, and 90 v. seats out of 100 will be purchased open vIn this case, which of the following statements are true about the market at this price-quantity combination? Check all that apply. ¥ ( Total revenue is greater than total variable cost: @ Profit is negative. VO Price is greater than average total cost. V1 The alrline is operating at too big a loss and should, therefore, cancel this ight. open v If total fixed cost decreases to $25,500, does this change the production decision of the airline in the short run? x @ Yes @ No Close 0 In the short run, a change in total fixed cost merely results in a change in the magnitude of all the profit levels, but not the profit-maximizing outcome or the decision to operate the flight. This is because, in the short run, the only thing the firm should bbe concemed about is whether total revenue is greater than or equal to total variable cost, since it has to suffer the loss of total fixed cost no matter what. The following table computes the new profit levels for a total fixed cost of $25,500. Note that the proft-maximizing choice remains the same at $400 per ticket and 90 passengers: Price Total Revenue Total Cost Total Variable Profit (Dollars per ticket) (Dollars per flight) (Dollars per flight) Cost (TVc) _(Dollars per 1,000 ° 25,500 ° 25,500 700 21,000 53,500 28,000 32,500 400 36,000 59,800 34,300 23,800 200 20,000 60,000 34,500 40,000 True or False: Operating a flight without full capacity should never happen in the short run, because it cannot be profitable. X@ Te O False Explanation: Close A The only thing that matters in the short run is that total revenue is greater than or equal to total variable cost, because the airline must incur the total fixed cost whether it takes flight or not. As long as this condition is met, operating a less-than-full-capacity flight is the profit-maximizing outcome. Therefore, this statement must be false.