Question

Read the following and then thoughtfully discuss the questions.

Often airline frequent flier programs upgrade high volume passengers one, three, or five days in advance.

What are the differential costs of this practice?

What are the opportunity costs?

What are the opportunity costs of not doing this?

Would it be wise to sell a seat to a passenger walking up to the gate at the last minute a ticket based on the variable cost? Why or why not?

Answer 1

Differential costs are the cost between two alternatives available. in this situation costs will be different for flyer flying in the economy class as compared to business class. The difference in the economy and the business class price ticket is the cost of food and beverages

Opportunity cost is also known as alternative cost is a  benefit, profit, or value of something that must be given up to acquire or achieve something else in simple term loss of other alternatives when one alternative is chosen. Here opportunity cost of not loosing customer in future because of which sales lost.

No it will not be wise to sell a seat to a passenger walking up to the gate at the last minute a ticket based on the variable cost. As tickets are available in starting only then the customer will buy it for actual price and it is less risky for the airlines to lose the seat if they wait till that last minute.