Principles of Economics- Mankiw (5th) 332

Principles of Economics- Mankiw (5th) 332 - 342 PA R T F I...

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342 PART FIVE FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY willingness to pay for a ticket. In this case, movie theaters raise their profit by price discriminating. Airline Prices Seats on airplanes are sold at many different prices. Most air- lines charge a lower price for a round-trip ticket between two cities if the traveler stays over a Saturday night. At first this seems odd. Why should it matter to the airline whether a passenger stays over a Saturday night? The reason is that this rule provides a way to separate business travelers and personal travelers. A pas- senger on a business trip has a high willingness to pay and, most likely, does not want to stay over a Saturday night. By contrast, a passenger traveling for personal reasons has a lower willingness to pay and is more likely to be willing to stay over a Saturday night. Thus, the airlines can successfully price discriminate by charging a lower price for passengers who stay over a Saturday night. Discount Coupons
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