What costs unavoidable in the short-run become avoidable

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Reference no: EM133454378

Question: Econ Airlines introduces a new route from LAX to SFO. This route required a one-time non-refundable and non-transferable $1,000,000 gate fee at SFO airport. There was also one-time training of SFO airline staff which cost $100,000. Gas costs 100 dollars per passenger (round-trip). Airline staff (pilots and crew) cost 100 dollars per passenger. Airline staff and crew are paid by route (round trip) and not salary. The annual lease for the SFO hanger and gate is $1,000,000 You are hired as a consultant to answer the following questions. a. Which of these costs, if any, are sunk? b. At what price should Econ Airlines shut down in the short-run? Consider what costs are relevant versus irrelevant (avoidable versus unavoidable) based on the shut-down decision time horizon. c. What costs unavoidable in the short-run become avoidable in the long-run?

Reference no: EM133454378

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