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An airline knows that there are two types of travelers: business travelers and vacationers. For a particular flight, there are 100 business travelers 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.

a. How much profit will the airline earn if it sets the price of each ticket at $600? Why?

b. How much profit will the airline earn if it engages in price discrimination? Why?

c. 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? Why?

Business Economics, Economics

  • Category:- Business Economics
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