Agricultural Economics 3rd Edition by Evan Drummond, John Goodwin

Exercise 4

Duck Airlines charges all passengers the same $400 fare on one of its routes. The average flight carries 60 people in a plane with a capacity of 100. One-third of the flyers are business travelers, and two-thirds are leisure travelers. A bright, young economist tells the airline that it should engage in price discrimination. She estimates that if it increases the business fares by 10 percent, it will lose 5 percent of the business flyers, and if it reduces leisure fares by 10 percent, it will increase leisure traffic by 20 percent. Calculate the total revenue of Duck under its current one-price plan and under the price discrimination plan.