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5. (20 points) Suppose that Southwest Airlines is the only carrier on flights between Hobby Air- port in Houston and Love Field in Dallas. It is a short flight, but many people don't want to drive the 250 miles; also, flights to and from IAH and DFW (the other major airports) are not substitutes because they are crowded, require longer travel times, etc. - so Southwest enjoys monopoly power. There are two groups of passengers flying on this route: business executives (E) and college students (S). Demand for each group is shown in the table below, in thousands of flights per year. Marginal cost of any passenger is $40. One-Way Trips Per Year (thousands) One-Way Fare |Executives |Students $140 C $130 $120 $110 10 $100 11 AUTAWNY $90 12 $80 13 $70 14 (a) Suppose Southwest is able to identify and separate passenger types. If it wants to en- gage in third-degree price discrimination, what prices should it charge to executives and students? (Hint: start by finding total revenue for each group, then calculate marginal revenue.) (b) If Southwest is unable to price discriminate and has to charge one price to all passengers, what price will it charge? (Hint: find total demand by adding quantities demanded at each price; then proceed as in part (a).) Does price discrimination increase Southwest's profit? By how much