Prob set 1

# Prob set 1 - ECON 151 Problem Set 1 Dr Charlie Link 1...

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ECON 151 Problem Set 1 Dr. Charlie Link 1. British Airways is considering whether to cancel flights for its London to Philadelphia route. To make the decision however, the airline needs to know the opportunity cost of going ahead with one scheduled round-trip flight. You have been hired as an economic consultant and the following cost data have been given to you: /When doing the calculations assume that it takes one day to accomplish one round trip flight./ Salaries of the crew \$3,000 per day Mortgage on plane \$5,000 per day Fuel \$2,500 per round trip flight In-flight costs (e.g. soft drinks etc.) \$1,500 per round trip flight Litter removal fee \$500 per round trip flight Landing fees \$1,000 in London \$500 in Philadelphia (assume one landing in each location per round trip flight) a. Calculate the value of the opportunity cost of each round trip flight. To do that, first determine the type of each cost associated with the round trip flight (avoidable or unavoidable) and fill in Table 1 with the corresponding values (each cost can be only one type). Then calculate the total for each column, find the value of the opportunity cost and fill in the blank below. Table 1 If you are in doubt as to whether the particular item is avoidable or unavoidable, you may indicate in one sentence why you selected the category you did. 1 Costs Avoidable costs (Variable costs) Unavoidable costs (Fixed costs) Salaries of the crew Mortgage on plane Fuel In-flight costs Litter removal fee Landing fee in London Landing fee in Philly Total

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The opportunity cost of one round trip flight from London to Philadelphia is _____________. When would it be appropriate for the airline to cancel its round trip flights?
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Prob set 1 - ECON 151 Problem Set 1 Dr Charlie Link 1...

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