Price discrimination strategy of united airlines
Macroeconomics
Price Discrimination: Suppose that United Airlines knows that it faces the
following demand equations and corresponding marginal revenue equations for its
(one-way) SFO to Las Vegas route:
Friday Departure: P = 320-2Q (Demand)
MR = 320-4Q (Marginal Revenue)
Tuesday Departure: P = 200-Q (Demand)
MR = 200-2Q (Marginal Revenue)
Marginal Cost is a constant $40 per passenger.
a) Find the profit-maximizing quantity of passengers for Friday departures and
Tuesday departures. Find the profit-maximizing price for each.
b) Calculate total revenue received on Friday flights and Tuesday flights.
c) Draw two separate graphs for Friday demand and Tuesday demand. In your graph
include a marginal revenue curve and marginal cost curve. Show the profit
maximizing price and output for each graph.
d) What if United Airlines charged $150 per passenger everyday of the week, would
this maximize profits? Why or why not?
