An airline is flying between two cities. The airline has the following costs associated with the flight:

What will be an ideal response?

Crew $4000 Plane daily depreciation $2000
Fuel 1000 Plane daily insurance 2000
Landing fee 1000
The airline has an average of 40 passengers paying an average of $200 for this flight. Do you think the airline should be flying between the two cities? Evaluate from a short-run perspective.

Yes, from a short-run perspective, the airline should make this flight between the two cities. The total variable costs are $6000 ($4000 + $1000 + $1000). The total revenue is $8000. Thus the flight covers total variable cost and leaves $2000 to apply against $4000 of total fixed cost. If the plane did not fly, the firm would lose the entire $4000 of total fixed cost.
The average variable costs are $150 per passenger ($6000/40 passengers). The price, or average revenue of $200, is greater than the average variable cost of $150. The airline received enough revenue to cover average variable costs and also $50 per passenger to offset fixed costs that average $100.