Reference no: EM132905349

Consider an airline deciding how much to charge passengers who fly standby. Suppose that flying a 200-seat plane across the country costs the airline $100,000. In this case, the average cost of each seat is $100,000/200, which is $500. One might be tempted to conclude that the airline should never sell a ticket for less than $500. In fact, however, the airline can raise its profits by thinking at the margin. Imagine that a plane is about to take off with ten empty seats, and a standby passenger is waiting at the gate willing to pay $300 for a seat. Should the airline sell the ticket to the passenger?

Which of the principles of economics does this case study belong to? Should the airline sell the ticket to the passenger for $300 considering the relevant principle of economics that is connected to the case study context? Why?