1. An airline with monopoly power has daily flight service from Dallas to Denver, and has two different consumer groups with the following demands:

• P = 800 - q
• P = 500 - 0.5q

Costs for the airline are MC=AC=80.

1. Suppose the airline wishes to price discriminate across demand types. Calculate the profit-maximizing price per round to each group. What are profits from each group? Show the situation on two graphs (one for each group).
2. Calculate the point elasticity of demand at the chosen price for each group, and also the Lerner Index. If group 1 is mainly business travelers and group 2 is mainly vacationers, describe the requirements to effectively price discriminate.
3. What is the CS and DWL in each market?
4. Suppose that instead of a monopoly, the airline is competing with a rival in Cournot quantity competition. Calculate the Cournot price and quantity in each market and compare to the monopoly outcome.