Economics assignment
This is the article….
The tumble in crude oil prices helped spark a rally in airline stocks, amid optimism over lower fuel costs. The NYSE Arca Airline Index XAL, -0.17% jumped 2.1%, to trade within 0.5% of the near 16-year closing high reached on May 16. Among the index’s more-active components, shares of Delta Air Lines Inc. DAL, -1.91% rallied 2.6%, Southwest Airlines Co. LUV, -0.65% climbed 2.2%, American Airlines Group Inc. AAL, -0.66% rose 2.4%, United Continental Holdings Inc. UAL, +0.40% advanced 2.8% and Spirit Airlines Inc. SAVE, -0.52% gained 4.1%. July crude oil futures CLN7, +0.00% tumbled 5.5% to $48.54 a barrel, after OPEC disappointed traders by extending current production cuts rather than increasing them. The airline index has now gained 3.8% year to date, while the S&P 500 SPX, -0.09% has climbed 7.9%.
This is the assignment…..
After reading the MarketWatch article “Airline stocks get a boost as crude oil prices sink” explain what will happen to marginal cost and average total cost for airlines as oil prices fall. Show the impact using a graph of each cost curve as well (you can draw marginal cost and average total cost on the same graph).
Is jet fuel a fixed or variable cost for an airline? How does cost affect profit? Why would a change in airline profits affect airline stock prices? Graphs can either be drawn using a program (Word or Paint), or you can draw the graphs by hand and scan them into your computer.
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