BAA is a private company that operates some of the largest airports in the Unite
ID: 1207856 • Letter: B
Question
BAA is a private company that operates some of the largest airports in the United Kingdom, including Heathrow and Gatwick. Suppose that BAA recently commissioned your consulting team to prepare a report on traffic congestion at Heathrow. Your report indicates that Heathrow is more likely to experience significant congestion between July and September than any other time of the year. Based on your estimates, demand is Q_x^1 = 450 - 0.2F,where Q_d^1 is quantity demanded for runway time slots between July and September. Demand during the remaining nine months of the year is Q_d^2 = 218.75 - 0.125P, where Q_d^2 is quantity demanded for runway time slots. The additional cost BAA incurs each time one of the 90 different airlines utilizes the runway is pound 950 provided 70 or fewer airplanes use the runway on a given day. When more than 70 airplanes use Heathrow's runways, the additional cost incurred by BAA is pound 5 billion (the cost of building an additional runway and terminal). BAA currently charges airlines a fixed fee of pound 1,412.50 each time the runway is utilized. As a consultant to BAA, devise a pricing plan that would enhance Heathrow's profitability.Explanation / Answer
In the summertime:
If you were not constrained....
Q = 450 - 0.2 P
P = 2250 - 5Q
R = Q*P
R =(2250-5Q) Q
marginal revenue
dr = 2250 - 10 Q
equals marginal costs
950 = 2250 - 10 Q
10Q = 1300
Q = 130 - double current capacity.
Since we can't fly that many planes.... what is the pricing such that Q = 80
P = 2250 - 5*70 = 1900.
Since Heathrow can't service this capacity, the optimal summer time pricing would be at a level such that demand = 80
P = 2250 - 5*70 = 1900
Off peak pricing
P = 1750-8Q
R = 1750Q - 8Q^2
dr = 1750 - 16Q
950 = 1750 - 16Q
Q = 50
P = 1750 – 16(50)
P = 950
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.