as the exclusive carrier on a local airline route, a regional airline must determine the number of flights it will provide and the fare it will charge. Taking into account operating and fuel costs, airport changes, and so on, the estimated cost per flight is $2,000.00. It expects to fly full flights (100 passengers), and its marginal cost on a per passenger basis is $20.00. Finally, the airline's estimated demand curve is P=120 - (0.1*Q), where P is the fare in dollars, Q is the number of passengers per week.
a) what is the airline's profit maximizing fare? How many passengers does it carry per week using how many flights? What is its weekly profit?
b) suppose the airline is offered $4,000.00 per week to haul freight along the route for a local firm. This will mean replacing one of the weekly passenger flights with a freight flight (at the same operating cost). Should the airline carry freight for the local firm? Explain.