Posted by too old on .
Airline pricing is a good example of price discrimination. Airlines set different prices for first-class and excursion. Suppose the economics division of a major airline company estimates the demand and marginal revenue functions for first-class and excursion fares from Los Angeles to Beijing as:
Qa = 2100 - 0.5 Pa
MRa = 4200 - 4 Qa
Qb = 8800 - 4 Pb
MRb =2200 - 0.5 Qb
where Q = number of passengers and P = ticket price
a. If the marginal cost of production is $200 per passenger, what fare and what number of passengers will maximize profit?
b. Would the airline make more profit by charging a single price? (If a single price is to be set, the demand equations from each market segment have to be combined)