Consider two airlines (Southwest and American) that have a monopoly on the routes they fly. Both airlines face the same market demand curve for their flights given by: P = 500 - 2Qd MR = 500 - 4Q Both airlines also face a constant marginal cost of $50 (assume there are no fixed costs). Southwest charges just one price and does so optimally. However, American is able to price discriminate by charging $300 for last minute or week day fliers (usually business people) and $100 for those customers who book far in advance. A)Based on these prices how many seats will American save for week day fliers? Calculate the profit for both firms. B)Graphically show the producer surplus for both firms. Is price discrimination beneficial for the airlines? Why?
Consider two airlines (Southwest and American) that have a
P = 500 - 2Qd
MR = 500 - 4Q
Both airlines also face a constant marginal cost of $50 (assume there are no fixed costs). Southwest charges just one
A)Based on these prices how many seats will American save for week day fliers? Calculate the profit for both firms.
B)Graphically show the
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