Any charge that is not airfare is referred to as ancillary revenue for airlines—and they are cleaning up on it to the tune of $20 billion a year. While consumers can avoid some fees, such as those for food, preferred seating, and wi-fi, the majority can’t avoid baggage fees. What type of pricing strategies are airlines using? Is it ethical for airlines to charge baggage fees?
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Any charge that is not airfare is referred to as ancillary revenue for airlines—and they are cleaning up on it to the tune of $20 billion a year. While consumers can avoid some fees, such as those for food, preferred seating, and wi-fi, the majority can’t avoid baggage fees. What type of pricing strategies are airlines using? Is it ethical for airlines to charge baggage fees?
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- What type of pricing strategies are airlines using? Is it ethical for airlines to charge baggage fees?GameZone, a video games store, is considering the best way to price two new games – a first-person shooter (FPS) and a racing game. There are four types of consumers that might buy the games with roughly equal numbers of each type, and their willingness to pay (WTP) for each game is detailed in the table below (assume that the willingness-to-pay for a second game of the same type is zero). How should Gamezone price the two games separately to maximise revenue? How should Gamezone price a bundle of both games to maximise revenue? Is there an alternative (involving bundling) that generates more revenue than either single prices or a bundle alone? Under what condition/s is bundling likely to increase profits for a firm? Consumer Type WTP for FPS game WTP for racing game A $120 $70 B $70 $120 C $160 $10 D $10 $160Provide at least three examples and discuss, illustrating how firms can use discounts while avoiding giving rebates to consumers with a high willingness to pay.
- Consider the table below, which shows seven potential customers who are interested in taking a 30-minute helicopter ride. The helicopter has room for eight people, including the pilot. The cost to the helicopter company of taking on each additional passenger is $5 Part 1. If the company can charge only one price, what should it be? $_______ Part 2. Suppose instead of charging one price for adults and one price for children, the helicopter company decides to charge different prices for young children (ages 12 and under), teenagers, adults, and senior citizens (those people 65 and older). What price should the firm charge for each group, and what total profit could it earn as a result? Senior citizens: _______ Adults: _________ Teenagers: _______ Young children: _________ Total profit: $_________A supplier is selling tomatoes in two cities, Antalya and Istanbul. It costs him 1 TRY per kg of tomatoes delivered in each city. Let p1 be the price of a kg of tomatoes in Antalya and p2 be the price of a kg tomatoes in Istanbul. The price-response curves in each city: Antalya: d1(p1) = 500 - 100p1 Istanbul: d2(p2) = 1,200 - 200p2 Assuming the supplier can charge any price he likes, what prices should be charged for a kg of tomatoes in Antalya and Istanbul to maximize total contribution? What are the corresponding demands, revenues, and total contributions in each city? What is the total demand, total revenue, and total contribution over the two cities?Superior Cable TV buys the right to provide an exclusive movie network (HBOW) in its province. Superior pays $300,000 a year for HBOW and the marginal cost of providing HBOW is zero. Superior's economist realizes they have two groups of customers: the 8,000 hard-core HBOW fans who will pay up to $300 a year for the exclusive network; and the 70,000 casual TV viewers who will pay up to $30 a year for HBOW. If Superior Cable TV can price discriminate, what is its maximum profit?
- You are a produce grocer who sells two products: apples and bananas (you sell them in bushels, but we’ll just consider a bushel to be one unit of fruit). Each costs you $1 per bushel wholesale, which is your only cost. You can prevent resale among your customers, of which there are three, each with unit inelastic demand. Consumer 1 has a willingness to pay of $2 per apple (bushel) and $8 per banana (bushel). For Consumer 2, the willingness to pay is $4 for apples and $6 for bananas. Consumer 3 would pay up to $9 for apples but only $1 for bananas. A. Suppose you price apples and bananas separately. What is the profit-maximizing price for each? B. What is the profit-maximizing price if you sell the two fruit as a pure bundle? C. What leads to higher profits – selling separately or offering a pure bundle? Explain how this answer relates to the correlation in consumers’ willingness to pay across apples and bananas. D. Can you do better by mixed bundling? Explain why or…Joe Smiley buys his mobile phone services from Sprint, the sole provider in his state of Wyoming. Sprint offers the following pricing plans: a fee of 10 dollars per month and 50 minutes of free calls per month or a fee of 20 dollars per month and 100 minutes of free calls. Under both plans the price of additional calls is 25 cents per minute.Joe Smiley's demand curve for mobile phone services is P=100 - 0.5Q where P is measured in cents/minute and Q is measured in minutes per month. a) suppose Joe Smiley subscribes to the first plan (10 dollar fee and 50 free minutes) (i) how much calling time would he consume? (ii) what would be his total benefit? What would be his surplus? b) suppose Joe Smiley subscribes to the second plan (20 dollar fee and 100 free minutes) (i) how much calling time would he consume? (ii) what would be his total benefit? What would be his surplus? c) which plan would Joe Smiley choose? He will choose plan (b) because it maximizes his surplusThe demand for health club services is Q = 100 − 2P, and the marginal cost of providing these services is MC = −110 + 2Q. If a two- part tariff pricing system is used, what is the optimal fixed fee?
- JetBlue and Delta are the only two major airlines with regularly scheduled service between New York and Nantucket. There are 900 potential passengers every week, each of whom is willing to pay up to $400 for a ticket. Since the two airlines provide an essentially identical (bad) service, customers simply prefer to buy from the cheaper one. (If they charge the same price, then they will split the market equally.) Each airline can transport at most 1200 passengers each week. You can safely assume that each airline spends literal peanuts (i.e., zero) serving passengers; however, each passenger displaces air cargo that is worth $160 in profits to the carriers. Suppose that each airline takes a short-run perspective and only wants to maximize each week's profits, and that neither one would consider shutting down the route in the foreseeable future. (a) What is the appropriate economic model to study price competition in this market? (b) If you use Nash equilibrium to make a prediction, what…JetBlue and Delta are the only two major airlines with regularly scheduled service between New York and Nantucket. There are 900 potential passengers every week, each of whom is willing to pay up to $400 for a ticket. Since the two airlines provide an essentially identical (bad) service, customers simply prefer to buy from the cheaper one. (If they charge the same price, then they will split the market equally.) Each airline can transport at most 1200 passengers each week. You can safely assume that each airline spends literal peanuts (i.e., zero) serving passengers; however, each passenger displaces air cargo that is worth $160 in profits to the carriers. Suppose that each airline takes a short-run perspective and only wants to maximize each week's profits, and that neither one would consider shutting down the route in the foreseeable future. (a) What is the appropriate economic model to study price competition in this market? (b) If you use Nash equilibrium to make a prediction, what…JetBlue and Delta are the only two major airlines with regularly scheduled service between New York and Nantucket. There are 900 potential passengers every week, each of whom is willing to pay up to $400 for a ticket. Since the two airlines provide an essentially identical (bad) service, customers simply prefer to buy from the cheaper one. (If they charge the same price, then they will split the market equally.) Each airline can transport at most 1200 passengers each week. You can safely assume that each airline spends literal peanuts (i.e., zero) serving passengers; however, each passenger displaces air cargo that is worth $160 in profits to the carriers. Suppose that each airline takes a short-run perspective and only wants to maximize each week’s profits, and that neither one would consider shutting down the route in the foreseeable future. a) What is the appropriate economic model to study price competition in this market, and why? b) If you use Nash equilibrium to make a…