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Disc10key - Economics 101 Principles of Microeconomics Fall...

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Economics 101: Principles of Microeconomics Fall 2009 Discussion 10 Handout Question 1: Price Discrimination Serenity Airlines is a monopolist that provides flights between Madison and Paradise. a.) Right now, Serenity Airlines is serving business travelers only and the demand of business travelers is given by ܦ ܤ is ܲ ܤ = 600 െ ܳ ܤ , and the Marginal Cost (and the Average Cost as well) is equal to $100. Suppose that the monopolist practices first- degree price discrimination. i. What will the quantity that the monopolist produces? ii. What is the total profit that the monopolist makes in this case?
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b.) After conducting some market research, Serenity Airlines decides not to just serve business travelers anymore, but to also serve tourist travelers by using third degree price discrimination. Now, Serenity Airlines will charge two different prices for these two different groups. The cost structure remains the same. The demand for the two groups are: Business: ܲ ܤ = 600 െ ܳ ܤ Tourist: ܲ ܶ = 400 1 2 ܳ ܶ i. What is the Marginal Revenue curve for business travelers?
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