Wembley Travel Agency specializes in flights between Los Angeles and London. It books passengers on United Airlines at \($900\) per round-trip ticket. Until last month, United paid Wembley a commission of 10% of the ticket price paid by each passenger. This commission was Wembley’s only source of revenues. Wembley’s fixed costs are \($14,000\) per month (for salaries, rent, and so on), and its variable costs, such as sales commissions and bonuses, are \($20\) per ticket purchased for a passenger.

United Airlines has just announced a revised payment schedule for all travel agents. It will now pay travel agents a 10% commission per ticket up to a maximum of \($50.\) Any ticket costing more than \($500\) generates only a \($50\) commission, regardless of the ticket price. Wembley’s managers are concerned about how United’s new payment schedule will affect its breakeven point and profitability.

1. Under the old 10% commission structure, how many round-trip tickets must Wembley sell each month

(a) to break even and

(b) to earn an operating income of \($7,000\)?

2. How does United’s revised payment schedule affect your answers to (a) and (b) in requirement 1?