Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Question
Chapter 2, Problem 1.1CE
To determine
The list of some of the issues that will need to be resolved, if (AA) decides to routinely charge different prices to customers in the same class of service.
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A cruise ship company offers two packages to its clients: an “economy” package and a “deluxe” package with more amenities to its higher-paying customers. The company estimates that its customers have the following demand functions:
Economy package: Q(E) = 20,000 - 10PE
Deluxe package: Q(D) = 5900 - 1.5PD
The costs for the two services (as a function of the number of passengers) are:
Economy passenger: C(QE) = 5000 + 100QE + 0.1Q^2E
Deluxe passenger: C(QD) = 5000 + 200QD + 6Q^2D
What prices should the company set for the economy and deluxe packages? What are the number of passengers that the ship will have in each package, and how much profit does the company make per cruise?
Now assume the ship has a maximum capacity of 4,000 people. How many spaces should be arranged for deluxe passengers and how many for economy? What prices should the company set for the two packages? What is the profit for the company now?
Chapter 2 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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- Consider PNW Airlines, an airline focused on transporting cargo. Their fleet is composed of four cargo airplanes. Total cargo capacity of the fleet is 100,000 cubic feet. The monthly cost of maintaining and operating the fleet is $50,000. Market research indicated that the demand curve for cargo capacity is d=300,000-25,000p where d is the demand across all segments and p is the transport price per cubic foot. Question 1: What is the price that maximizes profit for PNW Airlines if all the demand comes from a single segment? What is the demand if PNW sets price to be the value found in Question 1? How much profit does PNW Airlines make?arrow_forwardExplain these components related to airline industry in term of price discrimination : a) Market Segmentation b) Product Quality c) Demand Forecastarrow_forwardAirline industry. It’s not the biggest carrier, but there are significant barriers to entry enabling it to serve a number of very profitable routes.arrow_forward
- A travel agency identifies two customer segments for a cruise ship. The demand curve for customers that are less price-sensitive is D1=1000-2P1. The demand curve for customers that are more price-sensitive is D2=1000-3P2. The cost of maintaining each cabin is $50. If one single price is charged, what is the price to maximize the profit? What is the profit? If the differential prices are charged to each customer segment, what is the price for each customer segment respectively? What is the total profit? What is the profit increase by charging different prices to each customer segment compared with one single price?arrow_forwardConsider PNW Airlines, an airline focused on transporting cargo. Their fleet is composed of four cargo airplanes. Total cargo capacity of the fleet is 100,000 cubic feet. The monthly cost of maintaining and operating the fleet is $50,000. Market research indicated that the demand curve for cargo capacity is d=300,000-25,000p where d is the demand across all segments and p is the transport price per cubic foot. What is the price that maximizes profit for PNW Airlines if all the demand comes from a single segment?arrow_forwardA company can successfully charge different prices in country A and B. Marginal cost is $10. Demands in country A and B are Q=20.5-P and Q=5-P respectively. What are the profit- maximising prices in two countries? What quantity do they sell in two countries? The company now added country C, and its demand is Q=20.5-P. What maximising prices do they charge in three countries? What quantity do they charge in three countries?arrow_forward
- What is the perfect methodology to analyze Airlines industry in term of price discrimination? This is not an essay question.arrow_forwardMergers have been an important part of the airline industry. Have they beensuccessful?arrow_forward14-2. German brothels recently began offering a monthly subscription service for multiple purchasers. If you wished to reduce the incidence of prostitution, would you consider this pricing plan to be a desirable change?arrow_forward
- Refer to Figure 15-5. Part a) A profit-maximizing monopoly's profit is equal to: a) P2 x Q3. b) (P2-P4) x Q3. c) (P1-P6) x Q1. d) (P2-P5) x Q3. Part b) A profit-maximizing monopoly will produce an output level of a) Q3. b) Q4. c) Q2. d) Q1. Part c) A profit-maximizing monopoly will charge a price of Question 22 options: a) P2. b) P4. c) P1. d) P3.arrow_forwardAs an apparent result of airline deregulation, a. many small communities have been left without airline service. b. air fares have risen more quickly than they probably would have under continued regulation. c. small commuter airlines have almost vanished. d. the wages and benefits of airline workers have been reduced.arrow_forwardSuppose that a 20 percent cut in the price of coast-to-coast telephone calls brings in so much new business that it permits a long-distance telephone company to cut its charges for service from Chicago to St. Louis, but only by 2 percent. Is this practice equitable? Is it a good idea or a bad one?arrow_forward
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