Individuals differ in their willingness to pay for air travel, and airlines would like to charge different prices to different individuals based on their willingness to pay. Airlines typically attempt to divide passengers into two types: leisure travelers and business travelers. Suppose that an airline is charging $400 per ticket for all passengers on flights between New York and Washington D.C. The accompanying tables provide information on quantity demanded for air travel for leisure travelers and business travelers. Price(per ticket) Quantity‑leisure travelers(tickets per flight) $400 100 $500 50 Price(per ticket) Quantity‑business travelers(tickets per flight) $400 100 $500 90 a. What is the absolute value of price elasticity for leisure travelers if the airline increases the price to $500? Round your answer to the nearest whole number. b.What is the change in total revenue for leisure travelers when the price increases to $500? c. What is the absolute value of price elasticity for business travelers if the airline increases the price to $500? Round your answer to the hundredths place. d. What is the change in total revenue for business travelers when the price increases to $500? e. To maximize total revenue, the airline should charge $400 to leisure travelers and $500 to business travelers. $500 to both groups. $400 to both groups. $500 to leisure travelers and $400 to business travelers.

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter7: Consumer Choice And Elasticity

Section: Chapter Questions

Problem 13CQ: Suppose Erin, the owner-manager of a local hotel projects the following demand for her rooms: a....

See similar textbooks

Related questions

Question

Individuals differ in their willingness to pay for air travel, and airlines would like to charge different prices to different individuals based on their willingness to pay. Airlines typically attempt to divide passengers into two types: leisure travelers and business travelers. Suppose that an airline is charging $400 per ticket for all passengers on flights between New York and Washington D.C. The accompanying tables provide information on quantity demanded for air travel for leisure travelers and business travelers.

Price (per ticket)	Quantity‑leisure travelers (tickets per flight)
$400	100
$500	50

Price (per ticket)	Quantity‑business travelers (tickets per flight)
$400	100
$500	90

a. What is the absolute value of price elasticity for leisure travelers if the airline increases the price to $500? Round your answer to the nearest whole number.

b.What is the change in total revenue for leisure travelers when the price increases to $500?

c. What is the absolute value of price elasticity for business travelers if the airline increases the price to $500? Round your answer to the hundredths place.

d. What is the change in total revenue for business travelers when the price increases to $500?

e. To maximize total revenue, the airline should charge

$400 to leisure travelers and $500 to business travelers.

$500 to both groups.

$400 to both groups.

$500 to leisure travelers and $400 to business travelers.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions