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Unformatted text preview: . (Hint: Think about the average cost in long run equilibrium.) Monopoly: Single Price v. Perfect Price Discrimination 2) Suppose daily demand for airplane tickets from Madison to Chicago is given by the equation Q D =250  P. a. If every plane has over 250 seats, and flying a plane between these points costs $5,000 plus $50 per passenger, how many tickets would a monopoly airline sell, assuming it must charge all passengers the same price. Show this on a carefully labeled diagram. b. What will the airline's profit be? What will be the consumer surplus and deadweight loss? c. If the airline were able to perfectly price discriminate, how many tickets would it sell? What range of prices would be charged? Is there consumer surplus or deadweight loss? d. What is the average total cost at the optimal quantity in part c? Why is it optimal for the airline to sell some tickets below average cost?...
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This note was uploaded on 07/28/2010 for the course ECON 101 taught by Professor Hansen during the Fall '07 term at Wisconsin.
 Fall '07
 Hansen
 Microeconomics, Perfect Competition

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