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This NY Times article from 2008 (http://www.nytimes.com/2008/06/11/business/11air.html) explores the situation when airlines faced rising cost of fuel and fuel is the airlines’ biggest expense. The airlines were trying to find technologies that would lower their operating costs including investing in airplanes that are 30 to 40 per cent more fuel efficient. a. Would you say that price of fuel is a fixed or variable cost for an airline? b. Explain, using graphs and words, how an increase in fuel price changes an airline’s TC, VC, FC, ATC, AVC, AFC and MC. c. Explain how technological advances that make engines more fuel efficient change an airline’s TP, AP and MP. Illustrate using graphs. d. Explain, using graphs and words, how advancement in engine technology would change an airline’s TC, VC, FC, ATC, AVC, AFC and MC.
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