12:36 Airline pricing, considerations other than cost in pricing. Air Eagle is a

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12:36
Airline pricing, considerations other than cost in pricing. Air Eagle is about to introduce a daily round-trip flight from New York to Los Angeles and is determining how it should price its round-trip tickets.
The market research group at Air Eagle segments the market into business and pleasure travelers. It provides the following information on the effects of two different prices on the number of seats expected to be sold and the variable cost per ticket, including the commission paid to travel agents:
Number of Seats Expected to Be Sold
Price Charged Variable Cost per Ticket Business Pleasure
$ 500 $ 65 200 100
2,100 175 180 20
Pleasure travelers start their travel during one week, spend at least one weekend at their destination, and return the following week or thereafter. Business travelers usually start and complete their travel within the same work week. They do not stay over weekends.
Assume that round-trip fuel costs are fixed costs of $24,000 and that fixed costs allocated to the round-trip flight for airplane-lease costs, ground services, and flight-crew salaries total $188,000.
Required

Explanation / Answer

here total fixed cost = fuel fixed cost +salaries of flight-crew =$24,000+$188,000 =$ 212,000 now for the first case price charged =$ 500 cost per ticket =$65 profit =sales -total cost =500*(200+100) -(65*(200+100) +212,000) = $130,500-$212,000 = -$81,500 (loss) (answer) second case price per ticket =$2,100 cost per ticket =$ 175 profit = sales -Total cost =2,100*(180+20) -(175*(180+20) +212,000) = $385,000-$212,000 = $173,000 so price of each seat will be $2,100 with 180 business travelers and 20 pleasures travelers (answer)

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