Suppose that the marginal cost of a oneway airfare is 30 A I

Suppose that the marginal cost of a one-way airfare is $30.

A. If the airline practices perfect price discrimination, how many customers will purchase one-way airfare? How much producer surplus is earned from perfect price discrimination?

B. Suppose the airline cannot price-discriminate and must sell airfare at a single price. What price does the airline charge per ticket? How many tickets are sold at this price? How much producer surplus is earned?

4. Table 10.11 Customer Maximum Willingness to Pay (one-way airfare) $150 $130 $110 $90 $70 $30 Martin dam ina ia vlee yler

Solution

A. It will charge different price to different consumers and will charge each customer what he is willing to pay. He will sell 5 tickets. In this case his producer surplus will be (150-30) +(130-30) +(110-30) +(70-30) +(30-30) = 340

B. It will charge a price of $30. At this price 5 tickets will be sold and prdoucer surplus will be zero.