Avianca Offers Free Tickets to Stranded Spirits Airlines Passengers

Answer the following questions to check your understanding of the story.

What is the marginal revenue of providing a seat at a zero ticket price?

a) MR is less than the P

b) Cannot be determined

c) Zero

d) Negative

What is the marginal cost of providing an empty seat on an already scheduled flight?

a) It cannot be determined whether it is high or low

b) Negligible (almost zero)

c) MC is equal to ATC

d) Very high

How does Avianca’s profit change when empty seats are offered for free?

a) Cannot be determined whether the effect is significant or insignificant.

b) Doesn’t change much

c) Increases significantly

d) Decreases significant

Why does Avianca offer seats at a zero price?

a) To capture consumer surplus

b) Doing so is very profitable

c) To increase total revenue from the flight

d) To increase future demand

Is Avianca’s decision to offer free seats in self-interest social interest?

Avianca’s decision is ___________.

a) neither in the social interest nor in the self interest

b) in the self-interest but not in the social interest

c) both in the self-interest and the social interest

d) in the social interest but not in the self interest

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