1. If there are open first-class seats available on a particular flight, some ai

Question

1. If there are open first-class seats available on a particular flight, some airlines allow customers with coach (discount) tickets to upgrade to first-class tickets during the electronic check-in process. Suppose the regular price of a first-class ticket is $800, the total price of the upgrade ticket (original ticket price plus the upgrade fee) is $400, and the marginal cost of serving both types of customers (full-fare and upgrade first-class passengers) is $100. Also assume that the airline is a profit maximizing business. Which of the following statements is true?

A.        Marginal revenue (MR) for the full-fare customers must be higher than the marginal revenue (MR) from the upgrade customers

B.        Marginal revenue (MR) for the full-fare customers may be higher or lower than the marginal revenue (MR) from the upgrade customers

C.        Marginal revenue (MR) must be the same for both the full-fare customers and the upgrade customers

D.        Marginal revenue (MR) is equal to marginal cost (MC) for the full-fare customers, but the airline is simply willing to collect any positive amount from the upgrade customers

Explanation / Answer

C.        Marginal revenue (MR) must be the same for both the full-fare customers and the upgrade customers

the above is the answer as both have same marginal cost

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