An airline knows that there are two types of travelers: business travelers and vacationers.For a particular flight,there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket.There are 150 seats available on the plane.Suppose the cost to the airline of providing the flight is $20,000,which includes the cost of the pilots,flight attendants,fuel,etc.How much profit will the airline earn if it sets the price of a ticket at $600?

Question

Quizplus · Accepted Answer

If the airline sets the ticket price at $600, they will earn $60,000 from the business travelers (100 x $600) and $0 from the vacationers since they will likely choose a cheaper flight. This means that the total revenue for the flight will be $60,000.

Subtracting the cost of providing the flight ($20,000) from the total revenue ($60,000), the profit for the airline will be $40,000. Therefore, the best choice is C.

An Airline Knows That There Are Two Types of Travelers