ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question

Please answer d. and e.

Individuals differ in their willingness to pay for air travel, and airlines would like to charge different prices to different individuals based on their willingness to pay. Airlines typically attempt to divide passengers into two types: leisure travelers and business travelers. Suppose that an airline is charging $400 per ticket for all passengers on flights between New York and Washington D.C. The accompanying tables provide information on quantity demanded for air travel for leisure travelers and business travelers. Price (per ticket) $400 $500 Quantity-leisure travelers (tickets per flight) 100 50 a. What is the absolute value of price elasticity for leisure travelers if the airline increases the price to $500? Round your answer to the nearest whole number. b. What is the change in total revenue for leisure travelers when the price increases to $500? c. What is the absolute value of price elasticity for business travelers if the airline increases the price to $500? Round your answer to the hundredths place. d. What is the change in total revenue for business travelers when the price increases to $500? Price (per ticket) $400 $500 3 15000 .47 Quantity-business travelers (tickets per flight) 100 90
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Transcribed Image Text:Individuals differ in their willingness to pay for air travel, and airlines would like to charge different prices to different individuals based on their willingness to pay. Airlines typically attempt to divide passengers into two types: leisure travelers and business travelers. Suppose that an airline is charging $400 per ticket for all passengers on flights between New York and Washington D.C. The accompanying tables provide information on quantity demanded for air travel for leisure travelers and business travelers. Price (per ticket) $400 $500 Quantity-leisure travelers (tickets per flight) 100 50 a. What is the absolute value of price elasticity for leisure travelers if the airline increases the price to $500? Round your answer to the nearest whole number. b. What is the change in total revenue for leisure travelers when the price increases to $500? c. What is the absolute value of price elasticity for business travelers if the airline increases the price to $500? Round your answer to the hundredths place. d. What is the change in total revenue for business travelers when the price increases to $500? Price (per ticket) $400 $500 3 15000 .47 Quantity-business travelers (tickets per flight) 100 90
e. To maximize total revenue, the airline should charge $500 to both groups. $400 to leisure travelers and $500 to business travelers. $400 to both groups. $500 to leisure travelers and $400 to business travelers.
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Transcribed Image Text:e. To maximize total revenue, the airline should charge $500 to both groups. $400 to leisure travelers and $500 to business travelers. $400 to both groups. $500 to leisure travelers and $400 to business travelers.
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Step 1: Define Total Revenue
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Step 2: Find the change in TR for business travelers when price increases.
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Step 3: Choose the correct pricing to maximize TR.
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