There are other methods for finding the profit maximizing price and quantity using marginal revenue and marginal costs. If you know the marginal cost, marginal revenue and the price elasticity of demand then you can compute the price that will maximize profit. P=MC/ [1-(|e|)] or the profit maximizing markup above marginal cost is P=MC(1 + markup) where markup=[|e|/(|e|-1)] where |e| is the absolute value of the own price elasticity of demand. In this last case you can develop a table of optimal percent markup for marginal cost for various own price elasticities (e): e %markup -1.2 500 -1.4 250 -1.8 125 -2.5 66.67 -5.0 25 -11.0 10 So if the extra cost of another seat on a route is 1200 and the elasticity for that route is 5.0 then the optimal markup percent is 25% and the fare charged for the flight is P = MC (1 + markup) so P=1200(1+0.25)=1500 Required: Use this method to calculate a range of fares for routes with differing marginal costs and elasticities. Develop a discussion of your findings

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Answer MC indicates the rate at which the total cost of a product changes as the production increase... View the full answer