If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be irrational for the railroad to allow any passenger to ride for less than $75.

Question

Quizplus · Accepted Answer

The average cost includes fixed costs (which do not change with the number of passengers) and variable costs. If the variable cost of an additional passenger is less than $75, it could still be rational to allow them to ride for less, as long as the price covers the variable cost and contributes to fixed costs.

If the Average Cost of Transporting a Passenger on the Train