(Pre-pandemic), Qantas identified that its business traveller customers have a less elastic demand curve for airline travel than non-business customers, as well as shorter intervals between forward and return trips. a) Explain how this market situation provides an opportunity for third- degree price discrimination to increase Qantas profits over a common ticket price for all travellers. b) Suppose that at the current ticket price, the price elasticity of demand for their customers is 0.8. What does this imply for Qantas profits and a more sensible price strategy? c) Assume that the MC per return ticket is constant. Furthermore, suppose Qantas uses the third-degree price discrimination strategy you proposed in (a) and finds that the demand elasticity for return flight tickets with shorter intervals is 2.0, while that for flights with longer intervals is 4.0. Explain with maths how prices in the two markets relate to one another.

(Pre-pandemic), Qantas identified that its business traveller customers have a less elastic demand curve for airline travel than non-business customers, as well as shorter intervals between forward and return trips. a) Explain how this market situation provides an opportunity for third- degree price discrimination to increase Qantas profits over a common ticket price for all travellers. b) Suppose that at the current ticket price, the price elasticity of demand for their customers is 0.8. What does this imply for Qantas profits and a more sensible price strategy? c) Assume that the MC per return ticket is constant. Furthermore, suppose Qantas uses the third-degree price discrimination strategy you proposed in (a) and finds that the demand elasticity for return flight tickets with shorter intervals is 2.0, while that for flights with longer intervals is 4.0. Explain with maths how prices in the two markets relate to one another.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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