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Unformatted text preview: 2. You work for an airline company and are given the assignment of finding the optimal pricing structure for seats, given that there are two types of travelers: those that book their flights dwell in advance of their departure, and thus are presumed to be more sensitive to the price of the ticket, and those who book close to the time of the trip, and are presumed to be less price sensitive. You have determined that their demand curves are P L = 20 2Q L and P H = 40 4Q H , respectively. Both types of traveler are currently being charged $12, and your job is to find the prices, P L and P H , that maximize revenue. You recall the IPOD problem from Econ 306, and apply that solution. What prices do you propose? How much more revenue do you get with the new prices. What does the point elasticity of demand have to do with your solution? ....
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This note was uploaded on 04/12/2009 for the course ECON 306 taught by Professor Cramton during the Spring '06 term at Maryland.
- Spring '06
- Supply And Demand