Suppose an airline sells air tickets to two types of customer - business travelers and vacation travelers. Their estimated demand elasticities are -2.5 and -4.0 respectively. Suppose the marginal cost is constant at $240, and the services provided to the two types of customer are similar a. Based on the given information, explain with TWO practical reasons whether the airline should charge a higher price on business travelers or vocational travelers. Explain without calculation. b. Calculate the fares the airline should charge on the air tickets sold to the respective types of customers. Show your calculations. c. Suggest TWO practical methods the airline can differentiate the two types of customers and charge them the corresponding fares. Explain briefly

Suppose an airline sells air tickets to two types of customer - business travelers and vacation travelers. Their estimated demand elasticities are -2.5 and -4.0 respectively. Suppose the marginal cost is constant at $240, and the services provided to the two types of customer are similar a. Based on the given information, explain with TWO practical reasons whether the airline should charge a higher price on business travelers or vocational travelers. Explain without calculation. b. Calculate the fares the airline should charge on the air tickets sold to the respective types of customers. Show your calculations. c. Suggest TWO practical methods the airline can differentiate the two types of customers and charge them the corresponding fares. Explain briefly

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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