Question

Consider two small airlines: Flat Earth Air and Discriminator Air. Each airline has a monopoly on the route it flies. Each faces a market demand curve and marginal cost. The costs of running a flight are about the same no matter how many passengers are on board. Both firms fly the same model of airplane, which seats 200 passengers. So, the marginal cost of adding one passenger - the extra weight and the cost of a can of soda or two - is very small, almost negligible. Therefore, let's assume that each airlines marginal cost is constant and equal to the average total cost. What happens if one of the airlines price-discriminates but the other one does not? Explain, using diagrams: one for Flat Earth Air and one for Discriminator Air. All diagrams must be labeled appropriately and identify any profit, consumer surplus, and/or dead-weight loss. (20 points)

          Consider two small airlines: Flat Earth Air and Discriminator Air.
Each airline has a monopoly on the route it flies. Each faces a market demand curve and
marginal cost.
The costs of running a flight are about the same no matter how many passengers are on board.
Both firms fly the same model of airplane, which seats 200 passengers. So, the marginal cost
of adding one passenger - the extra weight and the cost of a can of soda or two - is very small,
almost negligible. Therefore, let's assume that each airlines marginal cost is constant and equal
to the average total cost.
What happens if one of the airlines price-discriminates but the other one does not? Explain,
using diagrams: one for Flat Earth Air and one for Discriminator Air. All diagrams must be
labeled appropriately and identify any profit, consumer surplus, and/or dead-weight loss.
(20 points)

Consider two small airlines: Flat Earth Air and Discriminator Air.
Each airline has a monopoly on the route it flies. Each faces a market demand curve and
marginal cost.
The costs of running a flight are about the same no matter how many passengers are on board.
Both firms fly the same model of airplane, which seats 200 passengers. So, the marginal cost
of adding one passenger - the extra weight and the cost of a can of soda or two - is very small,
almost negligible. Therefore, let's assume that each airlines marginal cost is constant and equal
to the average total cost.
What happens if one of the airlines price-discriminates but the other one does not? Explain,
using diagrams: one for Flat Earth Air and one for Discriminator Air. All diagrams must be
labeled appropriately and identify any profit, consumer surplus, and/or dead-weight loss.
(20 points)

Added by Erin B.

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