Micro-economics

Monopoly and Monopsony Section question

ABC Airlines flies only one route: Kuala-Lumpur to Timbuktu. The demand for each flight is Q= 800 - P. ABC's cost of running each flight is $30,000 plus $150 per passenger. a) What is the profit-maximizing price that ABC will charge? How many people will be on each flight? What is ABC's profit for each flight? b) ABC learns that the fixed costs per flight are in fact $1 10,000 instead of $30,000. Will the airline stay in business for long? Illustrate your answer using a graph of the demand curve that ABC faces, ABC's average cost curve when fixed costs are $30,000, and ABC's average cost curve when fixed costs are $110,000. c) Wait! ABC finds out that two different types of people fly to Timbuktu. Type A consists of businesspeople with a demand of Q = 410 -0.4P. Type B consists of students whose total demand is QB = 390 - 0.6P. Because the students are easy to spot, ABC decides to charge them different prices. Graph each of these demand curves and their horizontal sum. What price does ABC charge the students? What price does it charge other customers? How many of each type are on each flight? d) What would ABC's profit be for each flight? Would the airline stay in business? Calculate the consumer surplus of each consumer group. What is the total consumer surplus? e) Before ABC started price discriminating, how much consumer surplus was the Type A demand getting from air travel to Timbuktu? Type B? Why did total consumer surplus decline with price discrimination, even though total quantity sold remained unchanged