If there are open first-class seats available on a particular ...

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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]

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