Managerial Economics 2nd Edition by William Boyes

Exercise 13

Express Mail offers overnight delivery to customers. It is attempting to come to some conclusion about whether or not to expand its facilities. Currently, its fixed costs are $2 million per month, and its variable costs are $2 per package. It charges $12 per package and has a monthly volume of 2 million packages. If it expands, its fixed costs will rise by $1 million and its variable costs will fall to $1.50 per package. Should it expand?

A) What is the marginal cost of one more passenger on a 1,200-mile flight if there are between 250 and 300 passengers.
B) If the number of passengers is 300 and the flight is between 1,200 and 2,500 miles, what is the marginal cost of flying an additional mile?
C) What would the fare on a 2,500-mile flight have to be for a company to cover the operating costs?