Hahaha, yeah the algorithm in the term paper is indeed the algorithm that I use for modeling metropolitan areas, albeit with slightly different parameters (I also did get an A in the class/term paper, although I have a feeling the professor wasn't exactly looking too critically).
The point you raise is valid and is actually a problem right now, since demand is based on the airports population within 50 miles, and there are 3 primary ways in which the new demand model addresses it.
Although probably not going to be a part of this update, I do have runway information about all of the airports in the sim, as well as all aircraft have minimum runway requirements in the db, so it would be relatively trivial (and I indeed plan) to implement runway minimums such that you simply wouldn't be able to operate large jets out of small airports that can't sustain them.
The new model has airport parameters that 'grade' airports as to how preferable that airport is, similar to how metro areas and nations have attributes. So pax will prefer certain airports over others, although that 'grade' might be influenced in later updates by infrastructure constructed as part of the hub (lounges etc.), there are always going to be some airports that are more preferred. Although this will be implemented in this update, assigning attributes to airports will likely not be a priority until after all the nations and major metros have had their attributes set. Until then the attributes will be neutral. While not all passengers care a lot about the quality of the airport (lest LGA not exist), the premium passengers do. All of which is actually quite realistic.
I plan on implementing specific airport restrictions into the sim in a future update, this includes things like restrictions regarding international flights, maximum distance requirements (take a look at LGA or DAL for instance), as well as airport closure/opening times, maintenance or runway restrictions etc.
As a rule I generally try and avoid arbitrary restrictions on what you can or can't do in the game in favor of trying to model the realistic obstacles that prevent real world airlines from say operating out of Teterboro or the like.