Author Question: If there are open first-class seats available on a particular flight, some airlines allow customers ... (Read 86 times)

formula1

  • Hero Member
  • *****
  • Posts: 666
If there are open first-class seats available on a particular flight, some airlines allow customers with coach (discount) tickets to upgrade to first-class tickets during the electronic check-in process.
 
  Suppose the regular price of a first-class ticket is 800, the total price of the upgrade ticket (original price plus the upgrade) is 400, the marginal cost of serving both types of customers (full-fare and upgrade first-class flyers) is 100, and the airline maximizes profits. Which of the following statements is true? A) MR for the full-fare customers must be higher than the MR from upgrade customers.
  B) MR for the full-fare customers may be higher or lower than the MR from upgrades.
  C) MR = MC for the full-fare customers, but the airline is willing to collect any positive amount from the upgrade customers.
  D) MR must be the same for both full-fare and upgrade customers.

Question 2

In an unregulated, competitive market we could calculate consumer surplus if we knew the equations representing supply and demand. For this problem assume that supply and demand are as follows: Supply P = 4 + 0.116Q Demand P = 25 - 0.
 
  10Q, where P represents unit price in dollars and Q represents number of units sold each year. Calculate the annual value of aggregate consumer surplus.



Zack0mack0101@yahoo.com

  • Sr. Member
  • ****
  • Posts: 341
Answer to Question 1

D

Answer to Question 2

We must calculate the area above the equilibrium price and below the demand curve. The equilibrium price is:
4 + 0.116Q = 25 - 0.10Q
0.216Q = 21
Q = 97.22 units per year.

The area below the demand curve can be calculated after we know the height of demand at Q = 0 and Q = 97.22.
At Q = 0, P = 25.
At Q = 97.22, P = 25 - 0.10(97.22 ) = 15.28.
Since demand is linear, we can use the difference of 25 and 15.28 or 9.72 as the height of the space under demand.
Area = 1/2 b  h = (1/2 )(97.22 )(9.72 ) = 472.49



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

More than 34,000 trademarked medication names and more than 10,000 generic medication names are in use in the United States.

Did you know?

Certain chemicals, after ingestion, can be converted by the body into cyanide. Most of these chemicals have been removed from the market, but some old nail polish remover, solvents, and plastics manufacturing solutions can contain these substances.

Did you know?

No drugs are available to relieve parathyroid disease. Parathyroid disease is caused by a parathyroid tumor, and it needs to be removed by surgery.

Did you know?

Medication errors are three times higher among children and infants than with adults.

Did you know?

The U.S. Pharmacopeia Medication Errors Reporting Program states that approximately 50% of all medication errors involve insulin.

For a complete list of videos, visit our video library