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Suppose that United Airlines has a monopoly on the route between Chicago and Omaha, Nebraska. During the winter (DecemberMarch), the monthly demand on this route is given by P = a1 bQ. During the summer ( June August), the monthly demand is given by P = a2 bQ, where a2 a1. Assuming that Uniteds marginal cost function is the same in both the summer and the winter, and assuming that the marginal cost function is independent of the quantity Q of passengers served, will United charge a higher price in the summer or in the winter?
Ans: United Airlines will charge a price such that MR=MC. Let MC=c Winter: P=a1-bQ1 TR= P.Q1 = (a1-bQ1)Q1= a1Q1- b Q1^2. Thus, MR= a1- b (2)Q1 At eqb, a1-2b Q1= c, Q1= (a1-c)/2b Thus, P(winters)=(a1+c)/2 Summer: P=a2-bQ2 TR= P.Q2=…

Q2= a2Q2-b Q2^2 Thus, MR= a2-b(2)Q2 At eqb, a2-b(2)Q2=c Q2= (a2+c)/2b Thus, P(summers)= (a2+c)/2 Given that, a2>a1, we deduce that P(summers)>P(winters).


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