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    Suppose an airline flying on Charlotte - Chicago route

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    Suppose an airline flying on Charlotte - Chicago route has estimated the demand curves for three different types of customers: business (no advance purchase), leisure (7 day advance purchase), and discount (14 day advanced purchase) travellers. They are: business: P = 600 -Q and MR = 600 - 2Q; Leisure : P = 500 - 2Q and MR = 500 - 4Q; Discount: P = 400 - 3Q and MR = 400 - 6Q. Assume there is only one class of service, hence the marginal cost of providing the service is equal for all customers and is $100. What prices will the airline charge to each of the different segments of customers.

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    Solution Preview

    the profit maximization rule is always MR = MC.

    Given MC = 100, for business ...

    Solution Summary

    Suppose an airline flying on Charlotte - Chicago route

    $2.19