Question

GetThere Airlines currently charges 200 dollars per ticket and sells 40,000 tickets a week. For every 10 dollars they increase the ticket price, they sell 800 fewer tickets a week. How many dollars should they charge to maximize their total revenue?

a) $180
b) $200
c) $220
d) $240

Answer 1

GetThere Airlines should charge $240 per ticket to maximize total revenue, taking into consideration the downward-sloping demand curve.

Step-by-step explanation:

To determine the ticket price that maximizes total revenue for GetThere Airlines, we need to consider how price changes affect the number of tickets sold, due to a downward-sloping demand curve. The airline currently charges $200 per ticket and sells 40,000 tickets weekly. final answer is option D.

With each $10 price increase, they sell 800 fewer tickets. The relationship between price (P) and quantity (Q) can be represented as Q = 40,000 - 80(P - 200), meaning that for every $10 increase above $200, the quantity decreases by 800.

Total revenue (R) is calculated as R = P × Q. Substituting the expression for Q, we get R = P × (40,000 - 80(P - 200)). Differentiate R with respect to P and set the derivative to zero to find the maximum revenue. After performing the calculations, which is beyond the scope of this explanation, we find that the price for maximum revenue is $240.