500 400 305 300 AC2 250 AC D Q 200 300 500 Figure11.6.b c.Wait!EA finds out that two different types ofpeople fly to Honolulu.Type A is busine ess p ople with a dema nd of Q 2G0 -0.4P.Type B is stud whose total demand isQ=240-0.6P.The students are easy to spot,so EA decides to charge them different prices.Graph each of these demand curves and their horizontal sum.What price does EA charge the students? What price does EA charge other customers?How many of each type are on each flight? Writing the demand curves in inverse form,we find the following for the two markets: P4=650.2.5Q and Pa=400.1.67Q- Using the fact that the marginal revenue curves have twice the slope of a linear demand curve,we have: R,=650.5Q,and MR=400.3.34Q To determine the profit-maximizing quantities,set marginal revenue equal to marginal cost in each market: 650.5Q4=100,orQa=110and 400.3.34Qa=100,orQg=90. Substitute the profit-maximizing quantities into the respective demand curve to determine the appropriate price in each sub-market: P,=650-(2.5)110)=S375and Pa=400-(1.67(90)=$250.200 300 500 250 300 305 400 500 Q P D AC1 AC2 Figure 11.6.b c. Wait! EA finds out that two different types of people fly to Honolulu. Type A is business people with a demand of QA = 260 - 0.4P. Type B is students whose total demand is QB = 240 - 0.6P. The students are easy to spot, so EA decides to charge them different prices. Graph each of these demand curves and their horizontal sum. What price does EA charge the students? What price does EA charge other customers? How many of each type are on each flight? Writing the demand curves in inverse form, we find the following for the two markets: PA = 650 - 2.5QA and PB = 400 - 1.67QB . Using the fact that the marginal revenue curves have twice the slope of a linear demand curve, we have: MRA = 650 - 5QA and MRB = 400 - 3.34QB . To determine the profit-maximizing quantities, set marginal revenue equal to marginal cost in each market: 650 - 5QA = 100, or QA = 110 and 400 - 3.34QB = 100, or QB = 90. Substitute the profit-maximizing quantities into the respective demand curve to determine the appropriate price in each sub-market: PA = 650 - (2.5)(110) = $375 and PB = 400 - (1.67)(90) = $250