Question

On a 9:00 a.m. Atlanta to Chicago flight for two weeks from today, 70 of the 170 seats have been des- ignated for business class fares ($559), but only 40 of these 70 seats have been sold. The remaining 100 seats have been authorized for sale at the economy fare of $259 and all 100 of these seats have been sold. A new reservation request arrives for an economy fare seat. Explain the opportunity cost of reallocating one seat from the 70 seats that are currently designated for business class fare to fulfill this new request for an economy ticket. Can you know the opportunity cost with certainty?

Answer 1

The opportunity cost is the benefit foregone in converting the business class seat into an economic class seat. The amount of the opportunity cost = $559 - $259 = $300.

The opportunity cost is known with certainty. There will be an opportunity cost only when the plane runs short of business class seat and it fails to accomodate a business class passenger because of coverting the seat into economy class one. If there is no such request later, there would be no opportunity cost.

The opportunity cost is the benefit foregone in converting the business class seat into an economic class seat. The amount of the opportunity cost = $559 - $259 = $300.

The opportunity cost is known with certainty. There will be an opportunity cost only when the plane runs short of business class seat and it fails to accommodate a business class passenger because of converting the seat into economy class one. If there is no such request later, there would be no opportunity cost.