Number of Seats Expected to Be Sold Business Price Charged Variable Cost per Ticket Pleasure $600 $65 225 110 1,350 150 215 25 Pleasure travelers start their travel during one week, spend at least one weekend at their destination, and return the following week or thereafter. Business travelers usually start and complete their travel within the same work week. They do not stay over weekends. Assume that round-trip fuel costs are fixed costs of $18,500 and that fixed costs allocated to the round- trip flight for airplane-lease costs, ground services, and flight-crew salaries total $150,000. 1. If you could charge different prices to business travelers and pleasure travelers, would you? Show your computations. 2. Explain the key factor (or factors) for your answer in requirement 1. 3. How might Costal Airways implement price discrimination? That is, what plan could the airline formu- late so that business travelers and pleasure travelers each pay the price the airline desires? Required

What costs are relevant when pricing a cargo ship cruise? Challenging economic conditions in several countries have pushed freight ship companies to look for additional sources of revenues in addition to the revenue generated by hauling freight across the ocean.  In recent years, one additional source of revenue for these freight companies has been to take on cruise passengers in addition to regular cargo. Generally there are just 2 – 12 passengers on a cargo ship. Demand for cargo ship cruises is high; travelers need to book months in advance. Typically, passengers taking a cruise on a cargo (or container) ship will get an air-conditioned room with private bathroom for about $115 per day.  Meals are included; passengers will share three meals a day with the crew. The rooms are cleaned once a week by the ship’s steward. Passengers have to wash their own clothes. Entertainment options include walking or running on deck, playing ping pong or darts, watching or listening to CDs/DVDs, and…

Lamont purchased round-trip business-class airfare to Sweden which cost him almost $7,000. He priced the next level of seating and discovered it was only $800. The difference was significant but the reclining seats in business-class made it worth the extra money. What type of pricing is the airline using? A) product-form B) optional product C) captive product D) by-product E) seasonal

Mohave Corp. is considering eliminating a product from its Sand Trap line of beach umbrellas. This collection is aimed at people who spend time on the beach or have an outdoor patio near the beach. Two products, the Indigo and Verde umbrellas, have impressive sales. However, sales for the Azul model have been dismal.       Mohave’s information related to the Sand Trap line is shown below.         Segmented Income Statement for Mohave’s Sand Trap Beach Umbrella Products   Indigo   Verde   Azul     Total Sales revenue $ 60,000   $ 60,000   $ 30,000     $ 150,000 Variable costs   34,000     31,000     26,000       91,000 Contribution margin $ 26,000   $ 29,000   $ 4,000     $ 59,000 Less: Direct fixed costs   1,900     2,500     2,000       6,400 Segment margin $ 24,100   $ 26,500   $ 2,000     $ 52,600 Common fixed costs*   17,840     17,840     8,920       44,600 Net operating income (loss) $ 6,260   $ 8,660   $ (6,920 )   $ 8,000   *Allocated based on total…