You Paid $400 for Your Flight. The Person Next to You Paid $250. Here’s Why That Makes Sense—and Benefits Everybody.

Suppose that an airline offers a 100-seat flight from Philadelphia to Chicago, and that it costs $40,000 to cover the costs of the airplane, fuel, pilots, flight attendants, landing fees, insurance, and so on. The airline needs to make at least $40,000 in ticket revenues for the flight to be worth flying. If the airline were to offer just one fare for all tickets on that flight, what should that fare be?

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