Refer to Figure 15-17. The dean of the college argues: I think ...

[Yolanda]

Refer to Figure 15-17. The dean of the college argues: I think the course should be priced to maximize the profit the college earns, so these funds can be used to pay some other expenses.
 
   How much profit (or loss) will the college make on the course if it charges this price?
  A) -2,592,000 B) -1,080,000 C) 0 D) 450,000

Question 2

Your text refers to airlines as The Kings of Price Discrimination. Why is price discrimination common in the airline industry?
 
  What will be an ideal response?

[Mochi]

Answer to Question 1

D

Answer to Question 2

When airlines fly with empty seats, they lose the revenue that could have been earned from selling tickets for those seats that they can never recover. In addition, the marginal cost of flying one more passenger is very low. Therefore, airlines have an incentive to sell tickets for as many seats as they can, even if the price is low. This strategy will be profitable only if the airlines can prevent those who buy tickets at low prices from reselling them to other passengers at higher prices. Since the 1980s, airlines have used computer models to adjust prices for each seat on all of their flights. Airlines can divide their customers into two main categories: business travelers, who have inflexible schedules and often cannot book their flights very far in advance, and leisure travelers who are more flexible about when they travel and are more sensitive than business travelers to changes in price. By placing restrictions on who can purchase low-price tickets, airlines can force business travelers to pay high prices while attracting leisure travelers with low prices.