(Table: Maximum Willingness to Pay IV) Suppose That the Marginal

question 64

Essay

(Table: Maximum Willingness to Pay IV) Suppose that the marginal cost of a one-way airfare is $30.
a. If the airline practices perfect price discrimination, how many customers will purchase one-way airfare? How much producer surplus is earned from perfect price discrimination?
b. Suppose the airline cannot price-discriminate and must sell airfare at a single price. What price does the airline charge per ticket? How many tickets are sold at this price? How much producer surplus is earned?

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Definitions:

Par Value

The nominal or face value of a bond, share of stock, or coupon as stated by the issuer, which may not be indicative of the market value.

Debit Balance

A debit balance is the amount that remains in a particular account within a bookkeeping ledger, primarily indicating money owed or expenses that have surpassed credits.

Retained Earnings

This part of shareholders' equity reflects the accumulated net income retained for reinvestment in the business, rather than being paid out in dividends.

Paid-In Capital

The total amount of capital that shareholders have directly contributed to a company in exchange for shares.