Septa is the manager of a bus company that serves the Philadelphia-Washington DC route.
The demand curve facing each bus is:

Number of Seats Sold = 80 — 0.5 x Price

The variable cost of serving each seated customer is $20.

(For questions where Septa charges multiple prices, assume that there are segmentation fences in place such that the customers with higher WTP will pay the higher price.)

a. What is the maximum WTP in the market?

b. If Septa charges a price of $80 per seat, what is the profit for each bus?

c. If the price is $80 per seat, how much is the "Money Left on the Table"?

d. If Septa charges 2 prices, $120 (High Price) and $60 (Low Price), what is the profit for each bus?

e. If Septa charges 2 prices, $120 (High Price) and $60 (Low Price), how much is the "Money Left on the Table"?

f. If Septa charges 2 prices, $120 (High Price) and $60 (Low Price), how much is the "Pass-Up Profit"?

g. If Septa charges 3 prices, $120 (High Price), $70 (Medium Price), and $50 (Low Price), what is the profit for each bus?

h. If Septa charges a single price, what is the optimal price and what is the profit?

i. If Septa were to charge 2 prices, a High Price and a Low Price, what are the optimal prices? What is the profit at those optimal prices? State your answers very clearly including showing the profit function and the equations for calculating the optimal High Price and Low Price.

Answer rating: 100% (QA)

a The maximum WTP in the market is 80 This can be found by solving for P in the demand equation Number of Seats Sold 80 05 x Price 80 80 05P 05P 0 P 0 b If Septa charges a price of 80 per seat the pro... View the full answer