Suppose an airline is losing money because they cannot fill enough seats in their flights with passengers. The airline would offer a flight only if at least 70% of the seats could be filled. The average total cost for the typical flight is $12,600. Of this amount, $3,700 is the cost of the firm’s fixed inputs and $8,900 is the cost of its variables inputs. The average variable cost remains the same no matter how many flights are offered. The airline flies 60 seat jets and charges $300 per ticket. The market where the firm operates can be viewed as perfectly competitive.
a. What is the marginal revenue from a full flight?
b. If an airline offers a flight with 70% of its seats filled, by how much will it increase or decrease the losses?