An airline has two types of passengers: business passengers with fairly tight schedules and inelastic demand for airline flights and vacation passengers with flexible schedules and more elastic demand for airline flights. The tables below show the demand information for both types of passengers and the market demand for a single airline flight.
Business Traveler Demand Vacation Traveler Demand Market Demand Same Price for All Passenegers
Price dollars Quantity Demanded seats Marginal Revenue dollars Price dollars Quantity Demanded seats Marginal Revenue dollars Price dollars Quantity demanded Seats Marginal Revenue Seats
$500 0 - $500 0 - $500 0 -
450 25 $400 450 0 - 450 25 $400.00
400 50 300 400 0 - 400 50 300.00
350 75 200 350 50 $300 350 125 266.67
300 100 100 300 100 200 300 200 166.67
250 125 0 250 150 100 250 275 66.67
200 150 200 200 0 200 350 16.67
150 175 150 250 150 425
100 200 100 300 100 500
50 225 50 350 50 575
0 250 0 400 0 650
a. If the airline can charge only one price to all passengers and its marginal cost of supplying a seat on a flight is $300, the airline will sell seats and charge a price of $ for each seat.
b. If the airline can charge different prices to the two different types of passengers and its marginal cost of supplying a seat is still $300 per seat, then business travelers will buy seats at a price of $ per seat and vacation travelers will buy seats at a price of $ per seat.