After 9/11, the demand for air travel fell substantially, bringing the airline industry to its knees. Congress wanted to compensate the airlines for losses but there was a great debate over how much money was at stake.
How would you estimate the amount of compensation? Hint: producer surplus.
I would estimate the amount of compensation based on the statistical data relating to the loss that the airline companies are facing since 9/11.
Explanation:
The surplus that the airline companies were earning over their operational expenses was nothing else but the profit margin that the companies were earning from the business.
To devise the compensation to be given to the companies, calculating the surplus that they were earning from their operations would thus prove to be an intelligent solution.
