5. Suppose you are in charge of pricing for an airline. T here are customers: businesspeople and tourists. There are 100 customers of each type, and each customer buys at most one ticket. The table below shows the maximum they would pay ("willingness to pay") for each ticket type: First Class Businessperson Tourist Economy £300 £200 £500 £250 A customer's payoff from buying a ticket is the difference between the customer's willingness to pay and the price. Suppose that the marginal cost of both economy and first-class seats is zero. a) If you could engage in first-degree price discrimination, which tickets would you sell to each customer and how much would you charge? b) For the remainder of this question, suppose that you cannot tell who is a businessperson and who is a tourist. What prices should you charge for economy and first-class seats to maximise profits? c) How would the optimal prices change if instead there were 150 businesspeople and 50 tourists?

5. Suppose you are in charge of pricing for an airline. T here are customers: businesspeople and tourists. There are 100 customers of each type, and each customer buys at most one ticket. The table below shows the maximum they would pay ("willingness to pay") for each ticket type: First Class Businessperson Tourist Economy £300 £200 £500 £250 A customer's payoff from buying a ticket is the difference between the customer's willingness to pay and the price. Suppose that the marginal cost of both economy and first-class seats is zero. a) If you could engage in first-degree price discrimination, which tickets would you sell to each customer and how much would you charge? b) For the remainder of this question, suppose that you cannot tell who is a businessperson and who is a tourist. What prices should you charge for economy and first-class seats to maximise profits? c) How would the optimal prices change if instead there were 150 businesspeople and 50 tourists?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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