ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Heathrow Airport Holdings is the private company that operates Heathrow Airport in London. Suppose the company 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 Q1d = 600 – 0.25P, where Q1d is quantity demanded for runway time slots between July and September. Demand during the remaining nine months of the year is Q2d = 220 – 0.1P, where Q2d is quantity demanded for runway time slots.
The additional cost Heathrow Airport Holdings incurs each time one of the 80 different airlines utilizes the runway is £1,100 provided 80 or fewer airplanes use the runway on a given day. When more than 80 airplanes use Heathrow’s runways, the additional cost incurred by the company is £6 billion (the cost of building an additional runway and terminal). Heathrow Airport Holdings currently charges airlines a uniform fee of £1,712.50 each time the runway is utilized.
As a consultant to Heathrow Airport Holdings, what pricing plan would clearly enhance the company’s profitability?
What
£
What price should Heathrow Airport Holdings charge for runway slots for the remaining nine months?
£
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