Question

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

Discuss 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

Difference between costs of two alternatives is called diffeerential costs. Here alternatives are economy class or business class etc. Extra cost in economy and business class ticket price incurred is food and beverage.

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Opportunity costs represent the benefits an individual, investor or business misses out on when choosing one alternative over anothe.

Opportunity cost = return of most lucrative option not chosen - return of chosen option

by this opportunity costs of not doing this the loosing of the customer in future because of which lost sales.

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No, it will not be wise.

if ticket available in starting only then the customers will buy it for price available and it is not risky for the airline to lose the seat if they wait till that last minute