Question

Suppose Delta Airlines is considering running daily service from​ Youngstown-Warren Airport. If they do so they expect with their accounting profit to increase by​ $2 million/year. Which of the following statements is​ true?

A. Delta should definitely not run daily service ​Youngstown-Warren regardless of their implicit costs.

B. Delta should definitely run daily service ​Youngstown-Warren because their accounting profit is higher as a result.

C. Delta should only run daily service from​ Youngstown-Warren if their implicit​ costs, which is the amount they can make in accounting profit if they use those same resources in other​ airports, are less than​ $2 million.

D. Delta should only run daily service ​Youngstown-Warren if their implicit​ costs, which is the amount they can make in accounting profit if they use those same resources in other​ airports, are greater than than​ $2 million.

Answer 1

C. Delta should only run daily service from​ Youngstown-Warren if their implicit​ costs, which is the amount they can make in accounting profit if they use those same resources in other​ airports, are less than​ $2 million.

Just because a firm is earning accounting profit , need not necessarily mean it is the best option. Unless the firm is earning economic profits i.e revenues supercedes both implicit and explicit costs should it opt for the option.

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