TAIR Aviation is the only supplier of air transportation between Yellowknife and Whitehorse.

TAIR owns and operates four 55-seat aircraft, but has recently commenced providing air service between Yellowknife and Edmonton, using two of its four aircraft. TAIR now uses only two airplanes for daily fllights between Yellowknife and Whitehorse, each of which makes one return flight per day.

TAIR can now provide a maximum of 220 passenger-trips each day between Yellowknife and Whitehorse.

The per-passenger variable cost is unchanged: TAIR Aviation’s accountants have estimated that the (variable, marginal) cost per passenger-trip is $20.

The fixed cost of flight crew and fuel for flying planes must be borne whether or not TAIR has any passengers/customers. (The Ministry of Transportation requires TAIR to make all flights, to maintain its schedule.) TAIR operates to earn ‘gross profit’ (gross of fixed cost).

TAIR has identified two kinds of customers: Business travellers buy tickets no more than two weeks before they travel. Leisure travellers buy tickets two or more weeks before they travel. TAIR is able to identify and separate the two types of customers based on advance ticket-purchase

TAIR’s economics consultant has estimated the (daily) demand for air travel by the two groups of travellers:

If TAIR can charge business travellers a different price from the price charged to leisure travellers, (if TAIR can price-discriminate), what will be TAIR’s maximum daily (gross) profit on its Whitehorse-Yellowknife service when it can provide, at most, 220 passenger-trips per day?

	1) Maximum Gross Profit no greater than $60,000
	2) Maximum Gross Profit greater than $60,000 but no greater than $65,000
	3) Maximum Gross Profit greater than $65,000 but no greater than $70,000
	4) Maximum Gross Profit greater than $70,000 but no greater than $75,000
	5) Maximum Gross Profit greater than $75,000

Skill Required:

Economics

Posted:

3 months ago

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