Suppose an Airline Determines That Its Customers Traveling for Business

question 196

Multiple Choice

Suppose an airline determines that its customers traveling for business have inelastic demand and its customers traveling for vacations have an elastic demand.If the airline's objective is to increase total revenue,it should

• A)increase the price charged to vacationers and decrease the price charged to business travelers.
• B)decrease the price charged to vacationers and increase the price charged to business travelers.
• C)decrease the price to both groups of customers.
• D)increase the price for both groups of customers.

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Definitions:

Substitution Effect

The economic principle that as the price of one good increases, consumers will replace it with a cheaper alternative, holding utility constant.

Price Change

A variation in the cost of goods or services over time, which can result from factors like supply and demand, inflation, or market dynamics.

Income

The amount of money received on a regular basis from work, property, investments, or government benefits.

Utility Function

A mathematical representation of how consumers derive satisfaction from goods and services, assigning numerical values to different bundles of goods.