Question

The market for round trip airline travel from Madison to Cleveland over the Memorial Day holiday consists of two types of customers. Let X₁ denote the demand for airline tickets by students, and let X₂ denote the demand for airline tickets by non-student adults. Let the price of a round trip ticket be denoted by P_x, and suppose that everyone who purchases a ticket pays the same price. The demand functions of the two customer groups has been determined as follows

X₁ = 9000 – 30P_x

X₂ = 39600 – 90P_x

(a) What is the total market demand for airline tickets, as a function of by P_x? Keep in mind that the total demand is the sum of the group demands

(b) Suppose that the price-elasticity of demand by students, at the price by P_x, is -2. What is the price for the non-student adult?                                            

(c) At what price is the total revenue (for the entire market) maximized?

Answer 1