Leopold Bus Company runs daily service between Bigcity and Tinytown. It calculates that the average cost per trip (wages, gas, insurance, payments on loans, etc.) is $140. Leopold sells the bus tickets for $5 each. The busses hold 40 people, but are usually just three-quarters full. Leopold is considering half-rate tickets to students, on a standby basis.
Will the sales of the standby tickets cover the average costs of the extra passengers?
Will the sales of the standby tickets cover the marginal costs of the extra passengers?
Should Leopold proceed with the plan? Why?
Can you think of circumstances under which it would be unwise to offer the standby choice?