Question 22 Not yet answered Points out of 100 P Flag questi

Question 22 Not yet answered Points out of 1.00 P Flag question ExpressJet is the only airline flying from Little River to Big Falls. It has one flight per day, and the capacity of its airplane is 100 passengers. Each flight has a cost of $1,000, regardless of the number of passengers. In addition, the Little River Airport charges Express Jet a fee of $50 for each passenger on its daily flight. The demand for flights from Little River to Big Falls is given by the function Q-400-2P where Q is the number of passengers and P is the price of a ticket. ExpressJet sets its fare to maximize its profits. If the Little Falls Airport increased its fee from $50 per passenger to $100 per passenger, how would ExpressJet change the price of a ticket for a flight from Little River to Big Falls? Select one: O a. The fare would increase by $25 b. The fare would increase by $50. c. The fare would not change. O d. ExpressJet would quit flying from Little River to Big Falls e. The fare would increase by $75.

Solution

Initial price = Po

Profit would be maximized when MR = MC:

R = PQ = Q x (200 - Q/2)

MR = dR/dQ = 200 - Q

C = 1000 + 50Q

MC = dC/dQ = 50

200 - Q = 50

Q = 150 and P = 125

when C\' = 100Q + 1000

MR = MC would yield:

100 = 200 - Q

Q = 100 and P\' = 150 (new price)

Option a is correct

The fare would increase by $25