Suppose an airline sells air tickets to two types of customer – business travelers and vacation travelers. Their estimated demand elasticities are -2.5 and -4.0 respectively. Suppose the marginal cost is constant at $240, and the services provided to the two types of customer are similar. a. Based on the given information, explain with TWO practical reasons whether the airline should charge a higher price on business travelers or vocational travelers. Explain without calculation.

Suppose an airline sells air tickets to two types of customer – business travelers and vacation travelers. Their estimated demand elasticities are -2.5 and -4.0 respectively. Suppose the marginal cost is constant at $240, and the services provided to the two types of customer are similar. a. Based on the given information, explain with TWO practical reasons whether the airline should charge a higher price on business travelers or vocational travelers. Explain without calculation.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter14: Pricing Techniques And Analysis

Section: Chapter Questions

Problem 2E: The price elasticity of demand for air travel differs radically from first-class (1.3) to...

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Suppose an airline sells air tickets to two types of customer - business travelers and vacation travelers. Their estimated demand elasticities are -2.5 and -4.0 respectively. Suppose the marginal cost is constant at $240, and the services provided to the two types of customer are similar a. Based on the given information, explain with TWO practical reasons whether the airline should charge a higher price on business travelers or vocational travelers. Explain without calculation. b. Calculate the fares the airline should charge on the air tickets sold to the respective types of customers. Show your calculations. c. Suggest TWO practical methods the airline can differentiate the two types of customers and charge them the corresponding fares. Explain briefly
Vik and Fleet produce trainers in the sports-shoe market. For one of their main productsthey have the following demand curves: Vik PV =175 - 1:2Qv, Fleet Pf = 125 - 0:8Qfwhere P is in Rs. and Q is in pairs per week. The firms are currently selling 80 and 75 pairsof their products per week respectively.a. What are the current price elasticities for the products?
Genovia has experienced exceptional growth in recent years. Its GDP per capita (orIncome) has increased from around $30,000 to $50,000 in last 5 years. Over theperiod quantity demanded of personal cars has increased from 450,000 units per yearto 600,000 units. Quantity demanded of public transport, however, has declined from10,000 buses to 7,000 buses. Calculate income elasticity of demand and tell whichproduct is a normal good and which one is inferior.
1. A manufacturer estimates that D(p)=3000e0.05p units of a particular good will be sold at market price of p cedis per unit. Determine the market price that will result in marginal revenue of zero. 2. A manufacturer estimates that q = 800/30 – p units of a commodity are demanded when cedis per unit are charged. a. Express the price elasticity of demand as function of p . b. Calculate the price elasticity of demand when p=10. Interpret the result. c. Find the price at which the price elasticity of demand is unit-elastic. 3. An auto maker estimates that when q units of its saloon cars are sold in a day, its profit in millions of cedis is modelled as P(q) =100+25In 20 Find the 2 number of cars that should be produced and sold to maximise profit.
A firm has capacity limitations and charges 30USD for their service duringdaily peak times. If the market demand elasticity drops from -3 during peaktimes to -5 at off peak times, how much should the firm charge to earn themaximum profit during off peak times?
Suppose Ford currently sells 250,000 Ford Mustangs annually. The unit cost of a Mustang, including the -delivery cost to a dealer, is $16,000. The current -Mustang price is $20,000, and the current elasticity of -demand for the Mustang is 21.5. a. Determine a profit-maximizing price for a -Mustang. Do this when the demand function is of the constant elasticity type. Do it when the -demand function is linear. b. Suppose Ford makes an average profit of $800 from -servicing a Mustang purchased from a Ford dealer. (This is an average over the lifetime of the car.) How do your answers to part a change?
Taiwan is a major world supplier of semiconductor chips. A recent earthquake severely damagedthe production facilities of Taiwanese chip-producing companies, sharply reducing the amount of chipsthey could produce.a. Assume that the total revenue of a typical non-Taiwanese chip manufacturer rises due to theseevents. In terms of an elasticity, what must be true for this to happen? Illustrate the change in totalrevenue with a diagram, indicating the price effect and the quantity effect of the Taiwan earthquake onthis company’s total revenue.b. Now assume that the total revenue of a typical non-Taiwanese chip manufacturer falls due to theseevents. In terms of an elasticity, what must be true for this to happen? Illustrate the change in totalrevenue with a diagram, indicating the price effect and the quantity effect of the Taiwan earthquake onthis company’s total revenue.
If the price minute of JAWWAL- Oreedo is ILS 0.65 , and ATPU (Average traffic per user)is 55 minutes. Suppose that JAWWAL made 30% discount on minute price duringRamadan:a) Calculate the price elasticity of demand on JAWWAL service, if ATPU rises to 85 minutesdue to this offer, interpret your answer.b) Based on your answer in (a ) is the demand on JAWWAL service elastic, inelastic, orunit elastic.c) What do you advice Jawwal , is it profitable for JAWWAL to make the same offer gain,explain your answer.
The supply and demand schedules for tickets to basketball games in town of Oakwood are given in the table below.Price Quantity DemandedQuantity Supplied$65,0002,00074,0002,00083,0002,00092,0002,000101,0002,000The stadium owners need to find the optimum price for the games.What are the coefficients of elasticity of supply and demand if the price is raised from $6 to $8?
The supply and demand schedules for tickets to basketball games in town of Oakwood are given in the table below.Price Quantity DemandedQuantity Supplied$65,0002,00074,0002,00083,0002,00092,0002,000101,0002,000The stadium owners need to find the optimum price for the games.What are the coefficients of elasticity of supply and demand if the price is raised from $6 to $8? Characterize the demand and supply for tickets based on the calculated elasticies. What is the optimum price that the stadium owners can set for the tickets? Why is the selected price for the tickets better than other prices given in the table above?
A town of 2000 households constitutes a market for eggs. Current sales are 2400 dozen eggs per week at aprice of $1.25 per dozen. 1200 households living on the west side of the river buy 1600 dozen eggs and their elasticity of demands is -1.5. The remaining households live on the east side of the river, buy the rest of the eggs and have an elasticity of demand of -3. Calculate the elasticity of market curve for the town as a whole.
a) Suppose a movie theater determines that the elasticity of demand for movie tickets is -2.0 for senior citizens and –1.5 for adults under age 65, and the marginal cost is $2 per consumer. Use the Lerner index to determine how much senior citizens should be charged and how much adults under age 65 should be charged. b) A different movie theater, which faces the same marginal costs, charges consumers $6 for matinee movies and $10 for evening movies. Use the Lerner Index to calculate the price elasticity of demand for matinee consumers and evening consumers.