Buss 1040 essay

Topics: Supply and demand, Elasticity, Price elasticity of demand Pages: 2 (544 words) Published: October 12, 2014
 BUSS1040 Essay Assignment
a. In this case, Qantas is the monopolist in the markets thus it role of ‘price maker’ can be explained as Qantas would adjust the price by varying the quantity sells. Under this background, Qantas may use price discrimination to achieve high profit. As it knows the exact willingness to pay for each customer, Qantas would charge different customers accurately based on their different price elasticity of demand which is perfect price discrimination strategy. As a result, Qantas wins the total producer surplus (also is the whole revenue) because ‘it [continues] to sell units to the customer provided that their MB ≥ MC. Consequently, [Qantas] will sell units up to the point where MB = MC, meaning that the efficient quantity is traded’ (Nguyen and Wait p.106) and there is no deadweight loss at all.

b. The second-degree discrimination strategy should be recommended because Qantas cannot observe the exact type of the customers. In order to make a successful discrimination, it needs to set some incentives and customers would differentiate themselves by the given preferences. For instance, if Qantas provide economy and business seats holiday travellers probably would prefer the economy seats which are worth lower value while the business travellers choose the business class which has higher value. Thus the price would be discriminated and Qantas wins more profit than it just provides one kind of seats to all the customers.

c. Considering the given requirements, the third-degree discrimination should be suggested because Qantas could observe some information about business and holiday travellers’ willingness to pay due to the different destination. Thus, Qantas could separate customers into two submarkets and ‘charge profit-maximising price in each one based on their price elasticity of demand’ (Borland p.210). If Qantas raise the price of Sydney-to-Brisbane route, business travellers would still choose it they have relative...
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