Suppose there is only one airline that travels from one island to another.Assume that business travellers have a low elasticity of demand for the air travel.Holiday travellers on the other hand are flexible and are sensitive to price.Price discrimination can occur because:

Question

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Price discrimination can occur when there is a difference in price elasticity, which means that some customers are willing to pay a higher price than others. In this scenario, the business travellers have a low elasticity of demand, meaning they are less sensitive to price changes and will likely continue to travel even if prices increase. On the other hand, holiday travellers have a higher elasticity of demand, meaning they are more price sensitive and may choose not to travel if prices increase too much. This provides an opportunity for the airline to charge different prices to these two groups of customers and maximize profits. The other choices (A, B, D) do not directly relate to the ability to engage in price discrimination.

Suppose There Is Only One Airline That Travels from One