If the price elasticity of demand for airline tickets is 1.4 for a leisure traveler and 0.7 for a business traveler, then a price-discriminating monopolist would charge
A) a higher price for the business traveler than the leisure traveler.
B) the same price for both travelers.
C) a lower price for the business traveler than the leisure traveler.
D) a less profitable price for the business traveler than the leisure traveler.

Question

Quizplus · Accepted Answer

The price elasticity of demand is higher for leisure travelers (1.4) compared to business travelers (0.7). This means that leisure travelers are more price sensitive than business travelers. In order to maximize profits, a price-discriminating monopolist would charge a higher price to the business traveler who is less price-sensitive, while charging a lower price to the leisure traveler who is more price-sensitive. Therefore, the best choice is A, where the price for the business traveler is higher than the price for the leisure traveler.

If the Price Elasticity of Demand for Airline Tickets Is