An airline can sell tickets from Sydney to Melbourne to two types of customers:

Question

An airline can sell tickets from Sydney to Melbourne to two types of customers: business and leisure travelers. Each customer will purchase one ticket only Assume that the cost of providing either good (flight in economy or business) and the tickets are zero. The valuation or willingness to pay ($ per ticket) each type of buyer place on both types of tickets is presented below: Leisure 80 80 Business 120 300 Ticket Economy Business Which of the following pricing schemes yields the highest profits if the firm cannot identify the type of buyer who is making the purchase? Assume that if the customer is indifferent between buying a ticket or not, he buys it Note, PE is the price of the economy ticket and PB the price of the business ticket O PE-80; Ps-80. O PE-80; Pe-300. O PE-300; PB-300 O PE-80; PB-259 O PE-80; Pe-261

Explanation / Answer

Answer :

The price scheme which will yield the highest profit to the firm will be:

PE= 80, PB = 300

Explanation:

As leisure traveller is willing to pay only $80 for both business and economy tickets

While business traveller is willing to pay $80 for economy ticket and $300 for business ticket

As given that one consumer will buy only one ticket

if firm decides $80 for economy ticket then all the leisure traveller will it as for both type tickets they are only willing to pay $80 so it will not affect firm if they don't buy business tickets.

Firm decides $300 for business ticket than traveller will buy it as they are willing to pay that much price for business ticket

So it will be more profitable for the firm.

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