5. An airline offers two types of seats (economy seats and premium seats) to its passengers. The airline knows it faces demand from two types of passengers, vacationers and business travelers. However, it cannot tell them apart. What are the four conditions that characterize the prices that the airline should charge for each type of seat to induce vacationers to purchase Economy seats and Business travelers to purchase Premium seats? Which prices may work? Explain. Willingness to pay ($) Economy Vacationers Business travelers 500 600 Premium 550 900

5. An airline offers two types of seats (economy seats and premium seats) to its passengers. The airline knows it faces demand from two types of passengers, vacationers and business travelers. However, it cannot tell them apart. What are the four conditions that characterize the prices that the airline should charge for each type of seat to induce vacationers to purchase Economy seats and Business travelers to purchase Premium seats? Which prices may work? Explain. Willingness to pay ($) Economy Vacationers Business travelers 500 600 Premium 550 900

Principles of Macroeconomics (MindTap Course List)

7th Edition

ISBN:9781285165912

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter7: Consumers, Producers, And The Efficiency Of Markets

Section: Chapter Questions

Problem 7PA

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1. Online the timing and tailoring of prices to specific models of products is the key to successful pricing in online markets. And “Thanks to the ready availability of data in online markets, a pricing manager can easily approximate the elasticity of demands for the different products it sells online.” Assuming a 10 percent decrease in price increases sales by 28 percent, calculate the price elasticity of demand? If the wholesale price of the online product is $50 and sells at a price comparison site that charges $.50 per click and boasts a conversion rate of 5 percent (an average of 20 clicks are needed to generate a sale). What price should you charge for the product? What is the optimal markup on cost? 2. The authors assert that price sensitivity is affected by (1) product life cycles, and (2) numbers of competitors. In fact, “when the number of competing sellers doubles, a firm’s elasticity of demand is expected to double (and you should be able to verify this through…
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