PART 1
The Airline earns 35,000$ in revenue from tickets and 500$ from in-flight purchases.
The Airline pays 1200$ as fixed cost while staffing one flight attendant.
The Airline earns 25,800$ as profit when it carries three flight attendants.
PART 2
1 Profit would <u>decrease</u> with an increase in fuel price in future.
2 Profit would <u>increase</u> due to increased seat demands.
3 Profit would <u>decrease</u> due to less demand.
4 Profit would <u>decrease</u> due to an increase in fixed cost.
Explanation:
Stepwise solution
PART 1
Average price of each ticket= 175$ (given)
Total tickets sold= 200
Hence, total revenue from tickets= 175$ *200
= 35,000$
In flight purchase= 100 peoples (half of the people make purchase)
Revenue from each purchase= 5$
Total revenue from in-flight purchase = 500$
Fixed cost for carrying pilot= 500$
Fixed cost for carrying co-pilot= 500$
Fixed cost for carrying attendant= 200$
Given that one attendant is staffed
Thus, total fixed cost for the flight= cost for pilot + co-pilot+ attendant
= 1200$
Given, the Airline staffs 3 attendant
Thus, net fixed cost= 500$ +500$ +(3*200$)
=1600$
Catering charge= 1$ for each item purchased
Total item purchased = 100 (since half of the total passengers flying have purchased a meal)
Total Catering charges= 100$
Fuel Cost= 8000$
Hence, Net Expense of the Airline = net fixed cost + Total Catering charge+ Fuel cost
=1600$ +100$ +8000$
=9700$
Net Income of the Company from all sources (including in-flight purchases) = 35500$ (30,000$+500$)
Total profit earned by firm= Net Income- Net Expense
=35,500$-9700$
=25,800$
PART 2
<u>1</u> An unexpected fuel shortage would increase the price of fuel, as a result, the net expense of the firm would increase in the foreseeable future. Thus, Profit earned by the Airline would decrease
<u>2</u> A large conference would probably result in increased demands for seats as a result of which cost per seat would rise (due to dynamic tariff pricing mechanism). Hence, net income, as well as profit earned by the firm, would increase.
<u>3</u> Since a competing airline has also opened the same route thus, the net demand of the ticket would fall. Resultantly price per ticket too would fall causing less revenue realisation by the firm and hence decreased profit.
<u>4</u> Pilots union negotiating higher wages would increase the fixed cost of the firm resulting in increased expenses. Hence, net profit realised would decrease.
