Suppose two brothers own identical skydiving companies but have decided to experiment with different pricing structures.The older brother's company,Air Adventures,sets its prices using the profit-maximizing rule,while the younger brother's company,Sky Warriors,sets its prices using a two-tiered,price-discrimination model.Assuming that both companies face the same market demand curves,marginal costs,and costs of production,and wield significant market power for their service area,which of the following is most likely to occur?
A) Air Adventures will generate a similar net revenue to Sky Warriors.
B) Sky Warriors will generate a higher net revenue than Air Adventures.
C) Sky Warriors will generate a lower net revenue than Air Adventures.
D) Air Adventures will generate a higher net revenue than Sky Warriors.
E) Sky Warriors will eventually switch to the Air Adventures model.

Question

Quizplus · Accepted Answer

By using price discrimination, Sky Warriors can charge a higher price to customers with a higher willingness to pay and a lower price to customers with a lower willingness to pay. This allows the company to capture more consumer surplus and generate a higher overall revenue than Air Adventures. Therefore, it is likely that Sky Warriors will generate a higher net revenue than Air Adventures.

Suppose Two Brothers Own Identical Skydiving Companies but Have Decided