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

The marginal Cost is constant $40 per passenger.

Q1. Find out the profit-maximizing quantity of passengers for Friday departures and Tuesday departures. Determine the profit-maximizing price for each.

Q2. Compute the total revenue received on Friday flights and Tuesday flights.

Q3. Draw two separate graphs for Friday demand and Tuesday demand. In your graph comprise a marginal revenue curve and marginal cost curve. Show the profit maximizing price and output for each and every graph.

Q4. What if United Airlines charged $150 per passenger daily of the week, would this maximize profits? describe why or why not?

Managerial Economics, Economics

  • Category:- Managerial Economics
  • Reference No.:- M910032

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