Question: Airline pricing is a good example of price discrimination. Airlines set different prices for first-class and excursion. Suppose the economics division of a major airline company estimates the demand and marginal revenue functions for first-class and excursion fares from Los Angeles to Beijing as:

First Class

\(\begin{aligned} & {{Q}_{a}}=2100-0.5{{P}_{a}} \\ & M{{R}_{a}}=4200-4{{Q}_{a}} \\ \end{aligned}\)

Excursion

\(\begin{aligned} & {{Q}_{b}}=8800-4{{P}_{b}} \\ & M{{R}_{b}}=2200-0.5{{Q}_{b}} \\ \end{aligned}\)

where Q = number of passengers and P = ticket price

a. If the marginal cost of production is $200 per passenger, what fare and what number of passengers will maximize profit?

b. Would the airline make more profit by charging a single price? (If a single price is to be set, the demand equations from each market segment have to be combined)