By how much would Cody overall income increase

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Question - One of Cody's friends mentions to him that hotels and airlines seem to offer discounts during their off-peak seasons (to spur additional demand). This friend suggests that Cody follow a similar strategy. Since most of Cody's costs are fixed, the friend believes that Cody could clean up with such a strategy. Specifically, Cody's friend believes that Cody would increase his off-peak volume by 60% if he cut his fares by 25% during the off- peak season.

By how much would Cody's overall income increase if the friend's numbers are accurate (assume Cody's mileage during the off-peak season will increase by 40%, and not 60%, because he will have fewer deadhead trips). Next, evaluate the friend's advice - in particular, why might such a strategy work well for higher-priced items like airfare and hotels but not work as well for lower-priced items like a shuttle bus?

Reference no: EM133151813

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