Ki Airlines has determined that the price elasticity of demand for two customer segments (Business Class and Coach) is -1.50 and -1.75. Based on their expectations of profitability, Ki realizes the price of a Coach Seat should be $155 (one way). How much should Ki charge for a (one way) Business Class ticket? (30 points)
Ki Airlines has determined that the price elasticity of demand for two customer segments (Business Class and Coach) is -1.50 and -1.75. Based on their expectations of profitability, Ki realizes the price of a Coach Seat should be $155 (one way). How much should Ki charge for a (one way) Business Class ticket? (30 points)
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For Each of the following observations, check to see if the choices satisfy the Weak Axiom of Revealed Preference (WARP). If it does satisfy WARP, give as much information about the consumer's ranking of the bundles as possible. If it violates WARP, simply write It violates WARP.
a)
|
Observation |
PX |
PY |
X |
Y |
|
1 |
3 |
1 |
2 |
4 |
|
2 |
1 |
4 |
4 |
1 |
|
3 |
3 |
2 |
2 |
3 |
b)
|
Observation |
PX |
PY |
X |
Y |
|
1 |
1 |
5 |
3 |
2 |
|
2 |
3 |
2 |
2 |
1 |
|
3 |
2 |
4 |
1 |
4 |
2. Suppose there are two types of consumers. The demand for each type of consumer is given by:
Type A: Q = 70 - 2P
Type B: Q = 60 - 3P
Suppose a monopolist has constant marginal cost = 6. Also, for parts a-b, assume that the monopolist is unable to distinguish between the two types of consumers.
a) (4 points) What price should the monopolist charge?
b) (2 points) How much profit will this monopolist make?
Now suppose the monopolist is able to distinguish between the two types of consumers and can effectively price discriminate between them.
c) (4 points) What price should the monopolist charge to each type of consumer?
Price to type A consumers:
Price to type B consumers:
d) (4 points)How much total profit does the price discriminating monopolist make?
e) (2 points) Calculate the price elasticity of demand for Type A consumers at the monopolistâs profit maximizing price.
f) ) (2 points) Calculate the price elasticity of demand for Type B consumers at the monopolistâs profit maximizing price.
