An airline estimates that the potential cost of underpricing...

An airline estimates that the potential cost of underpricing is less than the potential lost profit of unfilled seats. The airline should a. set a price below the "target price" so that expected demand is, on average, above capacity. b. always set a price where MR=MC. c. set a price above the "target price" so that expected demand is, on average, below capacity. d. set a price equal to the "target price" so that expected demand is equal to each plane's capacity.

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Transcript

00:01 The demand for airline travel is quite sensitive to price.

00:04 Typically, there's an inverse relationship between demand and price.

00:08 When price decreases, demand increases, and vice versa.

00:12 One major airline found that when the price for a round -trip ticket between chicago and l .a.

00:17 Is $600, then the demand is $500.

00:22 Then, when the price is reduced to $400, the demand jumps to $1 ,200.

00:28 So we want to plot and get a model that will do.

00:31 Determine the total revenue.

00:34 So if i look at this and plot these, then i'm going to have 600, 500 would be here, 400, 1200 would be here, and we're looking at a linear function.

00:44 So let's go get y equals mx plus b as our function.

00:48 So i'm going to get my slope first by doing some subtraction.

00:52 So it's going to be 700, and that's going to be negative 200.

00:56 So i'm going to put 700 over negative 200, and my zeros will cancel out.

01:02 I have y equals negative 7 over 2x plus b.

01:06 Let's find our intercept.

01:08 I'm going to put 600, i mean 500 for y, equals negative 7 halves times 600 plus b.

01:16 So let's see what that's going to be.

01:18 That's going to be 300...