Question:
Access to reliable air transportation is an important determinant of business location. As a result, the prosperity and sometimes survival of smaller, relatively isolated cities often depend on the existence of an airport offering regular passenger service. But, as a recent U.S. General Accounting Office report noted: Small communities face a range of fundamental economic challenges in obtaining and retaining commercial passenger air service. The smallest of these communities typically lack the population base and level of economic activity that would generate sufficient passenger demand to make them profitable to air carriers. These situations present economic and managerial challenges, and this Problem is meant to illustrate and make you think about some of them. Obtaining real-world data on airlines' demand curves and costs is difficult, so let us work with a fictitious (but realistic) scenario.