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?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter13: Monopoly And Antitrust

Section: Chapter Questions

Problem 6P

See similar textbooks

Similar questions

Classify the following as a government-enforced barrier to entry, a banker to entry that is not government-enforced, or a situation that does not involve a barrier to entry. A patented invention A popular but easily copied restaurant recipe An industry where economies of scale are very small compared to the size of demand in the market A well-established reputation for slashing prices in response to new entry A well-respected brand name that has been carefully built up over many years
Why are urban areas willing to subsidize urban transit systems? Does the argument for subsidies make sense to you?
Imagine a monopolist could charge a different price to every customer based on how much he or she were willing to pay. How would this affect monopoly profits?
In the middle of the twentieth century, major U.S. cities had multiple competing city bus companies. Today, there is usually only one and it runs as a subsidized, regulated monopoly. What do you suppose caused the change?
Classify the following as a government-enforced barrier to entry, a banker to entry that is not government enforced, or a situation that does not involve a barrier to entry. A City passes a law on how many licenses it will issue for taxicabs A city passes a law that all taxicab drivers must pass a driving safety test and have insurance A well-known trademark Owning a spring that offers very pure water An industry where economies of scale are very large compared to the size of demand in the market
How does the demand curve perceived by a monopolist compare with the market demand curve?
From the graph you drew to answer Exercise 11.6, would you say this transit system is a natural monopoly? Justify. Use the following information to answer the next three questions. In the years before wireless phones, when telephone technology requited having a wile matting to every home, it seemed plausible that telephone service had diminishing average costs and might require regulation like a natural monopoly. For most of the twentieth century, the national U.S. phone company was AT&T, and the company functioned as a regulated monopoly. Think about the deregulation of the U.S. telecommunications industry that has occurred over the last few decades. (This is not a research assignment, but a thought assignment based on what you have learned in this chapter.)
What is the usual shape of a marginal revenue cuwe for a monopolist? Why?