Posted by **too old** on Sunday, November 8, 2009 at 10:35pm.

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:

First Class

Qa = 2100 - 0.5 Pa

MRa = 4200 - 4 Qa

Excursion

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)

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