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Price discrimination strategy of United Airlines for Friday and Tuesday

Price Discrimination: Assume that United Airlines knows that it faces the following demand equations and corresponding marginal revenue equations for its (one-way) SFO to Las Vegas route:

Friday Departure: P = 320-2Q (Demand)

MR = 320-4Q (Marginal Revenue)

Tuesday Departure: P = 200-Q (Demand)

MR = 200-2Q (Marginal Revenue)

Marginal Cost is a constant $40 per passenger.

a) Find the profit-maximizing quantity of passengers for Friday departures and Tuesday departures. Find the profit-maximizing price for each.

b) find out total revenue received on Friday flights and Tuesday flights.

c) Draw two separate graphs for Friday demand and Tuesday demand. In your graph include a marginal revenue curve and marginal cost curve. Show the profit maximizing price and output for each graph.

d) What if United Airlines charged $150 per passenger everyday of the week, would this maximize profits? Why or why not?

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M916171

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