Which of the following best explains why airlines often cut their ticket prices at the last-minute in order to fill the remaining empty seats on their flights?
A) The Federal Aviation Administration ranks each airline based on the percentage of flights that are fully booked. These rankings affect the decisions of firms to use a particular airline to fly their employees to business meetings.
B) Fixed costs in the airline industry are very large, but the marginal cost of flying one more passenger is very low.
C) Airlines receive a subsidy from the government for each flight that is fully booked and departs on time.
D) Cutting prices makes the airlines more popular with their customers, who may fly with the same airline in the future as the result of buying low-price tickets.
Question 2
Suppose a competitive firm is paying a wage of 12 an hour and sells its product at 3 per unit. Assume that labor is the only input. If the last worker hired produces four units of output per hour, then to maximize profits the firm should
A) hire another worker.
B) not change the number of workers it currently hires.
C) lay off some workers.
D) There is not enough information to answer the question.
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