Suppose Two Brothers Own Identical Skydiving Companies but Have Decided

question 57

Multiple Choice

Suppose two brothers own identical skydiving companies but have decided to experiment with different pricing structures.The older brother's company,Air Adventures,sets its prices using the profit-maximizing rule,while the younger brother's company,Sky Warriors,sets its prices using a two-tiered,price-discrimination model.Assuming that both companies face the same market demand curves,marginal costs,and costs of production,and wield significant market power for their service area,which of the following is most likely to occur?

• A) Air Adventures will generate a similar net revenue to Sky Warriors.
• B) Sky Warriors will generate a higher net revenue than Air Adventures.
• C) Sky Warriors will generate a lower net revenue than Air Adventures.
• D) Air Adventures will generate a higher net revenue than Sky Warriors.
• E) Sky Warriors will eventually switch to the Air Adventures model.

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Definitions:

Index Fund

A type of mutual fund or exchange-traded fund (ETF) designed to follow or track the components of a market index, like the S&P 500.

PHStat

PHStat is a software program used for statistical analysis, particularly in conjunction with Microsoft Excel.

Variance

A measure of the dispersion or spread of a set of values, calculated as the average of the squared differences from the mean.

Index Fund

A financial instrument, either a mutual fund or exchange-traded fund, intended to mimic the results of a designated market index.