Problem 3uppose an airline has monopoly over a certain route. The estimated price elasticity of demand for business travelers is E-12, while the price elasticity of demand for leisure travelers is Ey-24.The airline wants to set the prices separately for business and vacation travelers.EconomyFirat Class Onlyi the marginal cost of transporting each passenger is the same, und the airline is able to separate the two groups perfoctly, what is the optimal surcharge (in ) on business travelers? Oorexample. fleiture travelers pay 100, and business ravelers pay 200, then the surcharge is 100%)Anvwerb) Suppose that in order to separste business travelen, the airline must offer them slightly better conditions on board (for enample, serve them a meal). As a resul, the marginal cost of flying abasiness traveler is 30% higher than for a leivare traveler. What is the optimal surcharge (in ) on business fravelers in this case?AwwerNow suppose the airline introdaces a Basi Economy fare, where it outright ballies ins customers throughout the light, to atract the most price sensitive segment of the population. Assuming thatthe marginal cost of operating the Basie Economy class is the same as for regular leisure travelers, but the tickets are 20% cheaper, what is the price elasticity of demand among its cutomers?Anrwers

MARKUP (PRICE-MARGINAL COST)/PRICE = -1/ PRICE ELASTICITY OF DEMAND

Foblem 3 uppose an airline has monopoly over a certain route. The estimated price elasticity of demand for business travelers is Eg-12, while the price elasticity of demand for leisure travelers is The airline wants to set the prices separately for business and vacation travelen. Economy Frat Class Only ir the marginal cost of transporting each pasenger ia the same, nd the airline is able to separate the two groups perfectly, whal is the optimal surcharge (in ) on business travelers?(or eample. fleisure travelers pay 100, and business avelers pay 200, then the surcharge ia 100%) Anvwer b) Suppose that in order to separste business travelen, the airline mot offer them slightly betler conditions on board for enample, serve them a meal). As a resl, the marginal cont of tlying basiness traveler is 30% higher than for a leivare traveler. What is the optimal surcharge (in ) on busines travelers in this case?

Foblem 3 uppose an airline has monopoly over a certain route. The estimated price elasticity of demand for business travelers is Eg-12, while the price elasticity of demand for leisure travelers is The airline wants to set the prices separately for business and vacation travelen. Economy Frat Class Only ir the marginal cost of transporting each pasenger ia the same, nd the airline is able to separate the two groups perfectly, whal is the optimal surcharge (in ) on business travelers?(or eample. fleisure travelers pay 100, and business avelers pay 200, then the surcharge ia 100%) Anvwer b) Suppose that in order to separste business travelen, the airline mot offer them slightly betler conditions on board for enample, serve them a meal). As a resl, the marginal cont of tlying basiness traveler is 30% higher than for a leivare traveler. What is the optimal surcharge (in ) on busines travelers in this case?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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