Attempts: Keep the Highest:6 7. Changes in net revenue from price discrimination
ID: 1202834 • Letter: A
Question
Attempts: Keep the Highest:6 7. Changes in net revenue from price discrimination Consider the market for airline tickets on Bicoastal Airlines from Los Angeles to Chicago. The following graph shows the demand curve, marginal revenue (MR) curve, and marginal cost (MC) curve for this particular flight. In particular the cost of adding another passenger to an otherwise empty seat is constant at $100. For simplicity, assume throughout this question that there are no supply constraints owing to seating capacity Suppose Bicoastal Airlines sells each seat on the plane for the same price. Place the red point (cross symbol) at the profit-maximizing price and quantity. Dashed drop lines will automatically extend to both axes. Then, use the purple rectangle (diamond symbols) to shade the area representing net operating revenue at the profit-maximizing price and quantity PRICE (Dollars per ticket 500 Profit Max 400 Net Revenue 300 200 MC 100 D MR Demand 40 80 120 160 200 engers per tijghtl e QUANTITY IPassengers per flightl Help Clear AlLExplanation / Answer
1. The profit maximizing price and output is at point (300,80) , i.e Price =330 and Quantity =80. Mark this point(300,80) as red.
The net revenues = area of rectangle with the following four points (100,0),(100,80),(300,80),(300,0).
2. Net Revenue from Business travellers = Area of rectangle with the following points (100,0),(100,60),(350,60),(350,0).
Net Revenue from Other travellers = Area of rectangle with the following points (100,60),(100,100),(250,100),(250,60).
3. Increases it's Net revenue by (350-250)*60 = $6,000
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