Consider the market for air travel. It is discovered that the demand for business class ticket is relatively more inelastic compared to the demand for economy class ticket. (i) Assume that initially the equilibrium price and quantity of tickets for both classes are the same. Use a market diagram for air travel which illustrates both the business class and the economy class. (5 marks) Question 4 Consider a single pricing monopolist with a demand equation P = 60 – 2Q. It encounters a constant marginal cost of $20 which is also equals to the average total cost. Identify the optimal price and quantity for the monopolist. Illustrate your answers with a suitable diagram. (7 marks) Identify the profit and the consumer surplus of the monopolist at the optimal output. (6 marks) Compare to a perfectly competitive market. If this market were to be a perfectly competitive one, what is the equilibrium price and quantity? Illustrate your answer with a suitable diagram. (7 marks)Compare to a perfectly competitive market, calculate the deadweight loss of the monopoly. (5 marks)
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