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Scenario 15-1
An airline knows that there are two types of travellers: business travellers and vacationers. For a particular flight, there are 100 business travellers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc.

10. Refer to Scenario 15-1. How much profit will the airline earn if it sets the price of each ticket at $600?

a. -$5,000

b. $15,000

c. $40,000 d. $60,000

 

11. Refer to Scenario 15-1. How much additional profit can the airline earn by charging each customer their willingness to pay relative to charging a flat price of $600 per ticket?

a. $15,000

b. $25,000

c. $40,000 d. $70,000

 

 

12. If a monopolist can practice perfect price discrimination, the monopolist will a. eliminate consumer surplus.

a. eliminate deadweight loss.

b. maximize profits.

c. all of the above are correct.

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Darryn D'Souza
Darryn D'SouzaLv10
28 Sep 2019

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Related questions

Suppose that US Airways aggregate demand curve for seats in this quarter is
Q = 20000-20*P for P < 1000
where P is its price in dollars. Its marginal cost is $100 per passenger.
(i) What is US Airways prot-maximizing price?
(ii) When US Airways sets the prot-maximzing price, what is the value of consumer surplus and
deadweight loss? What is the rms prot?

(b) Lets suppose we write demand in a different way. Marginal cost is still $100. Suppose that there are 20,000 potential passengers on the National-Charlotte market. The willingness to pay of an individual potential passenger is uniformally distributed between $0 and $1000, and a passenger will travel if and only if the price set by US Airways, which has to be the same for all passengers, is less than their willingness to pay.

(i) What will be the quantity of seats sold (i.e., number of travellers) if US Airways sets a price of $100? $550 dollars?

(ii) What is the rms aggregate demand curve (i.e., given an expression like the one above)?

(iii) What would be its aggregate demand curve if valuations (i.e., willingness to pay) were uniformally distributed between $0 and $800? In this case what would be the prot-maximizing price, the consumer surplus, deadweight loss and prot?

(c) It takes about 7.5 hours to drive from DC to Charlotte. For business travellers driving is not an option. Suppose that there are 10,000 potential business travellers with willingness to pay uniformally distributed between $0 and $1000. There are 10,000 potential leisure travellers with willingness to pay to go to Charlotte also uniformally distributed between $0 and $1000, but they will drive if US Airways charges a price of more than $200 (i.e., you can think of the e

Do airlines practice price discrimination​? Explain.

A. Airlines do not engage in price discrimination because their passengers have similar demands

B. Airlines engage in price discrimination by charging lower prices for tickets purchased well in advance of the flight.

C. Airlines do not engage in price discrimination because airline seats are perishable.

D. Airlines do not engage in price discrimination because they charge lower prices to passengers who will stay at their destination over a Saturday night.

E. Airlines engage in price discrimination by charging business travelers and leisure travelers at the same price.

There are two types of consumers or vacationers of a monopoly hotel in a resort town: type 1, of which there are 300 consumers willing to pay V1 = $600 per day; and type 2, of which there are 500 consumers, willing to pay V2 = $200 per day. The daily unit cost of serving a consumer is $50 per day, plus there is a fixed cost of $5,000 per day.

a. What price will the hotel set and how many consumers will be served? What is the hotel's daily profit and what is consumer surplus?

b. Suppose a marketing campaign targeted to type 2 consumers can raise their willingness to pay to $350 per night. What is the maximum amount that the hotel would pay per day to run the campaign? If the campaign costs less than this amount and the firm engages in it what is the effect on consumer surplus?

c. Now suppose that there are 850 consumers willing to pay V2 = $200 per day. Everything else is the same. How do your answers to a) and b) change in this case?

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