Jet fuel is a major operating expense of an airline. Consider two airlines: Luna hedged fuel at US$50 per barrel, while Solis buys fuel on the spot market. The current spot price is US$70 per barrel. How should the difference in fuel expense affect their pricing and capacity planning?
A) Solis' marginal cost is higher and so it should set higher prices than Luna.
B) Both Luna and Solis face the same opportunity cost of fuel, which is the spot market price, and should price the same way.
C) Insufficient information to answer.
Correct Answer:
Verified
Q2: Your family owns a piece of empty
Q3: Consider the investments in setting up a
Q4: Even after a company shuts its business,
Q5: Which of the following concepts explains the
Q6: At the time of writing, the top
Q7: A newspaper and television station can share
Q8: The cost of researching and developing a
Q9: Accounting statements do not report opportunity costs.
Q10: Jet fuel is a major operating expense
Q11: Your family owns a piece of empty
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents