Determine the relevant costs

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Reference no: EM1360711

What are the relevant costs for American Airlines (AA) to fly a customer on a round-trip flight from Dallas to San Francisco on Friday, May 31, 2002, and returning on Monday, June 3, 2002? The incremental costs (i.e. variable costs) are very small, mainly food costs of $20, because other costs are fixed - the plane, pilots, ticket agents, and baggage handlers. The question is: What are the opportunity costs? To determine the opportunity costs, AA must assess what profit it has forgone by selling a seat to a particular customer. The profit forgone depends on whether the flight is full - meaning the aircraft is operating at capacity. AA would normally charge $400 for this round-trip ticket. If seats are available, the opportunity cost is ______. If the flight is full, the opportunity cost is _______.

Reference no: EM1360711

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