Attempts Average / 1 2. Exercise 14.2 The price elasticity of demand for air travel differs radically from first-class (-1.3) to unrestricted coach (-1.4) to restricted discount coach (-1.8). Given these elasticities, what are the optimal prices (fares) on a cross-country trip with incremental variable costs (marginal costs) equal to $120? Hint: Remember that MR = P x (1 + %) Marginal Costs (MC) Price Elasticity of Demand Optimal Price Class (S) (ED) 0*) First-class $120 -1.3 Unrestricted Coach $120 -1.4 Restricted Discount $120 -1.8 Grade It Now Save & Continue Continue without saving 3. Exercise 14.3 A U.S. export-import shipping company operates a general cargo carrier service between New York and several western European ports. It hauls two major categories of freight: manufactured items (Q1) and semimanufactured raw materials (@2). The demand functions for these two classes of goods are: P1 = 200 - 21 P2 = 80 - Q2 where Qi = tons of freight moved. The total cost function for the United States is TC = 20 + 4(@1 + @2) What is the firm's total profit f O 200@1 - 212 + 80@2 - 222 - 20 O 19601 - 212 + 7602 - Q22 O 19901 - 212 + 6002 - 222 - 20 O 19601 - 212 + 7602 - 222 - 20 The profit-maximizing levels of price and output for manufactured items are $ per ton and tons, respectively. The profit-maximizing levels of price and output for semimanufactured raw materials are $ per ton and tons, respectively. At these levels of output the marginal revenue in the manufactured items market is $ and the marginal revenue in the semimanufactured raw materials market is $ At these prices, the price elasticity of demand in the manufactured items market is and the the price elasticity of demand in the semimanufactured raw materials market is . (Hint: ED = MR-P ) What are the total profits if the company is effectively able to charge different prices in the two markets? $ If the company is required by law to charge the same per-ton rate to all users, the new profit-maximizing level of price and output are $ per ton and tons respectively. The total profits in this situation is $ Grade It Now Save & Continue Continue without saving