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In: Economics

Assume that due to an increase in demand, the average domestic airline fare increased from $319.85...

Assume that due to an increase in demand, the average domestic airline fare increased from $319.85 in the fourth quarter of 2013 to $328.12 in the first quarter of 2014, an increase of $8.27. The number of passenger tickets sold in the fourth quarter of 2013 was 151.4 million. Over the same period, the airlines’ costs remained roughly the same: the price of jet fuel averaged around $2 per gallon in both quarters, and airline pilots’ salaries remained roughly the same, averaging $117,060 per year in 2013). Can you determine precisely by how much producer surplus has increased as a result of the $8.27 increase in the average fare? If you cannot be precise, can you determine whether it will be less than, or more than, a specific amount?

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Rahul Sunny answered 6 months ago
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