Question

An airline knows that there are two types of travelers: business travelers and vacationers. For a particular flight, there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc. How much profit will the airline earn if it engages in price discrimination

Answer 1

The answer is "$55000".

Step-by-step explanation:

When discrimination against prices is practicable, $600 would be charged to travelers and $300 to tourists. Now,

Total revenue(TR)
`=P * Q`

`=600* 100+300 * 50 \\\\ =600* 100+15,000 \\\\ =60,000+15,000 \\\\=\$75,000`

Total Cost(TC)
`=\$20000`

Profit
`=TR-TC`

`=\$75000-\$20000 \\\\ =\$55,000`