Scenario 14-5
An airline knows that there are two types of travelers: business travelers and vacationers.For a particular flight,there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket.There are 150 seats available on the plane.Suppose the cost to the airline of providing the flight is $20,000,which includes the cost of the pilots,flight attendants,fuel,etc.
-Refer to Scenario 14-5.How much additional profit can the airline earn by charging each customer their willingness to pay relative to charging a flat price of $300 per ticket?

Question

Quizplus · Accepted Answer

If the airline charges a flat price of $300 per ticket, their revenue would be $45,000 (50 vacationers x $300 + 150 passengers x $300). However, if they charge each customer their willingness to pay, they can earn a revenue of $105,000 (100 business travelers x $600 + 50 vacationers x $300). Subtracting the cost of providing the flight ($20,000), the additional profit the airline can earn is $85,000.

Scenario 14-5 An Airline Knows That There Are Two Types of Travelers