Answer to Question #299653 in Macroeconomics for snarf

Question

 Using diagrams and the concept of elasticity of demand to support your answer, explain how both UK rail companies and airways go about filling seats in order to maximise revenue?

Answer 1

These are natural monopolies.

Optimal output volumewhich satisfies the equalityMR=MC is Q'. It is at the marginal cost curve MC crosses the limit curve MR revenue. With an output equal to Q', the value gross revenue TR will be P Q'

(the area of ​​the corresponding rectangles in the bottom graph and a height equal to TR' on the top).

The value of the average costs at output Q' will be AC'. Accordingly, the total costб will be equal to AC' Q' (area rectangle with sides AC' and Q' on the bottom chart and height, equal to TC', on the top). The difference between TR' and TC' will be the maximum possible the profit margin of the monopolist. Profits are maximized when the slope angles gross revenue curve ($\alpha$ ) and gross costs ($\beta$ ) are equal. It shows equality of MR and MC values.

One of the forms of realization of the exclusive proposals is holding against consumer price discrimination policy. There are three types of this policy, called price discrimination of the first, second and third degree.