In order to maximize its profit in the short run,an airline should offer an additional flight whenever
A)its marginal revenue exceeds its sunk costs
B)it marginal revenue exceeds its average total cost
C)the average seat price exceeds its sunk costs
D)the average seat price exceeds its average total cost
E)the additional revenue exceeds the additional costs

Question

Quizplus · Accepted Answer

In order to maximize profit in the short run, an airline should offer an additional flight if the additional revenue it earns exceeds the additional costs it incurs. This is because in the short run, the airline is unable to adjust its fixed costs (such as the cost of buying new planes or building a new terminal), so it must make decisions based on its variable costs (such as fuel, labor, and maintenance costs). By offering an additional flight, the airline incurs additional variable costs but also earns additional revenue from selling tickets, and it should only do so if the additional revenue exceeds the additional costs. Options A, B, C, and D all involve comparing revenue or prices to different types of costs, but they don't take into account the fact that the airline needs to cover its variable costs in order to make a profit in the short run.

In Order to Maximize Its Profit in the Short Run,an