Air Americo is about to introduce a daily round$-$trip flight from New York to Los Angeles and is determining how to price its round$-$trip tickets. The market research group at Air Americo segments the market into business and pleasure travelers. It provides the following information on the effects of two different prices on the number of seats expected to be sold and the variable cost per ticket, including the commission paid to travel agents:

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Reau ine requirements.

Question $3$

Question $4$

Requirement $1.$ If you could charge different prices to business travelers and pleasure travelers, would you? Show your computations.

Before determining if you would charge different prices to business travelers and pleasure travelers, calculate the total contribution margin at each price for each type of traveler.

Total contribution margin

$\backslash$table$[[$Price charged,Business,Pleasure$],[$$$,800,$$$,217,500,$$$,108,750],[,2,100,,545,775,,57,450]]$

Air Americo would maximize contribution margin and operating income by charging business travelers a fare of $$2,100$ and pleasure travelers a fare of $$800.$ Air Americo would maximize contribution margin and operating income by a price differentiation strategy $,$ where business travelers are charged different prices than pleasure travelers.

Requirement $2.$ Explain the key factor $($or factors$)$ for your answer in requirement $1.$

Business travelers are relatively price because they must get to their destination during the week $($exclusive of weekends$)$ and their fares are paid by their companies. Pleasure travelers are price sensitive because they have to pay for their own airfare.

$($Round the percentages to the nearest tenth percent, X$.$X$\%.)$

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Data table

$\backslash$table$[[$Price Charged,Variable Cost per Ticket,$\backslash$table$[[$Number of Seats$],[$Expected to Be Sold$]]],[$Business$,$Pleasure$],[$$$,800$$$,,75,300,150],[,2,100,,185,285,30]]$

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Air Americo would max

contribution margin and

pasure travelers a fare of $$800$

Air A

charged different prices than pleasure

More info

Pleasure travelers start their travel during one week, spend at least $1$ weekend at their destination, and return the following week or thereafter. Business travelers usually start and complete their travel within the same work week. They do not stay over weekends. Assume that round$-$trip fuel costs are fixed costs of $$24,500$ and that fixed costs allocated to the round$-$trip flight for airplane$-$lease costs, ground services, and flight$-$crew salaries total $$188,000.$

$\backslash$table$[[$Price charged,B$],[\backslash$table$[[$$