Question
2. British Airways is a monopolist flying from London to Edinburgh. Suppose that there are 20,000 potential customers with valuations uniformly distributed between 0 and
2. British Airways is a monopolist flying from London to Edinburgh. Suppose that there are 20,000 potential customers with valuations uniformly distributed between 0 and 1000. A passenger will fly if her valuation is more than BAs price.
a) How many seats will BA sell if it sets a single price of 550?
b) Write an equation for BAs demand curve.
c) If marginal cost is 100, what is the profit-maximizing price and quantity? What is consumer surplus and total welfare?
Suppose that BA can perfectly price discriminate.
Using the specification from above
d) What is the profit-maximizing quantity now?
e) What is consumer surplus and total welfare?
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