Question

Air Shangrila sells to both tourist and business travellers on its single route. Tourists always stay over on Saturday nights, while business travellers never do. The weekly demand function of tourists is QdT = 6000-10P, and the weekly demand function of business travellers is QdB=1000-P. If the marginal cost of a ticket is $200, what prices should Air Shangrila set for its tourist ticket and its business ticket? What would be the elasticity of demand for the two groups at that price?

Answer 1

Case-I- Tourist Qdt = 6000-10P P= Gooo-Q 10 - & TR = /6000-Q) Q (6000-2) Total Revenue = P.Q IMR 6000 - 20 10 MC= $200 degree monopoly The Condition this and PYMR=MC MR=MC 6000-2Q 10 200 Q = 2000 P=6000-Q 10 10 > P = 6000-2000 [P= 400 Hence P= $400 si tee price of tourist ticket.

Case -II - Business tickets Qde = 1000-P x TP = 1000-Q Q) * 2 Revenne = 1000-2Q Marginal Tми IMR = 1000-2Q MC= $200 be The condition for his and degree Monofely IP>MR = MC : MR=MC 1000-20= 200 x Q = 4007 P= 1000-Q 3 p= 1000-400 > TP=600] Hence P = $600 for Businen ticket set by Air Shangrila. # E las haty of demand for tourist tickets de da ap d Qar ( 2 ) & 400 2000 -2 # Elasherty of dewand for Business ficket dQdB de #(1000 - )(400) (400) -- 5 -1.5