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Homework answers / question archive / The estimated price elasticity of demand for coach class airline tickets for business travelers is estimated to be -1
The estimated price elasticity of demand for coach class airline tickets for business travelers is estimated to be -1.15, while for vacation travelers it is -1.52. Suppose an airline facing these demand elasticities wants to use third-degree price discrimination to maximize profit, by setting the price of a business travel ticket to PB and the price of a vacation travel ticket to PV. You may assume that the airline faces the same marginal cost for both types of travelers. What will be the relative price of a business travel ticket to a vacation travel ticket (PB/PV)?
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