Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (6th Edition)
Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (6th Edition)
6th Edition
ISBN: 9780134304755
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 16, Problem 16.3.12PA
To determine

Application of two-part tariff pricing.

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Suppose you are trying to determine the pricing for popcorn at a movie theater. There are just two types of customers (for simplicity assume just two total customers). One customer has a low demand for popcorn and will pay $1.00 for 16 oz of popcorn and nothing for a second 16oz. The high demand customer will pay $1.25 for the first 16oz and $0.50 for the second 16oz.  If you charge one price for every 16oz a customer buys, what would you charge?
Suppose that the market for air travel between Chicago and Dallas isserved by just airlines, United and American. An economist has studied thismarket and has estimated that the demand curves for round-trip tickets foreach airline are as follows:QdU = 10,000 - 100PU + 99PA (United’s demand)QdA = 10,000 - 100PA + 99PU (American’s demand) where PU is the pricecharged by United, and PA is the price charged by American.a. Suppose that both American and United charge a price of $300 each for around-trip ticket between Chicago and Dallas. What is the price elasticityof demand for United flights between Chicago and Dallas?b. What is the market-level price elasticity of demand for air travel betweenChicago and Dallas when both airlines charge a price of $300? (Hint:Because United and American are the only two airlines serving theChicago–Dallas market, what is the equation for the total demand for airtravel between Chicago and Dallas, assuming that the airlines charge thesame price?)
What causes pricing to reach equilibrium? Give an instance.
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