Delta Airlines has frequent (every hour or every two hours) flights between key metropolises in the Northeast – they call these flights the “Delta Shuttle” service. At the time of writing this problem set, the Shuttle service is offered between New York and Boston (LGA-BOS), DC (LGA-DCA), and Chicago (LGA-ORD). In the late 90s, Delta offered special student pricing on the Boston route, perhaps due to the fact that Boston is a college city (Boston University, Boston College, MIT, Harvard, etc.), but then discontinued the program in early 2000. Now Delta is re-considering decisions on their shuttle route. The MD-88 plane has 148 seats and the Embraer 175 has 76 seats. Please see the accompanying Excel with the pricing data. Getting started Graph quantity (x-axis) v price (y-axis) for the business and youth segment. So you should have two separate charts. Add a trendline to each chart & include the formula for the trendline. On a new sheet in your Excel, using the trendlines for prices between $220 and $20 (at increments of $10) find the quantity each segment will buy, as predicted by the trendlines. So now you should have a new sheet with Price, Quantity Predicted Y, and Quantity Predicted B. HINT: your trendline from (1) will be in the format of Price = a*Quantity + b. To do (2) you will need to use algebra to get the formula so that it is Quantity = c*Price + d. Using what you did in (2), find MR for each segment. What is MC? How will you find it? Why do you think this? Analysis What is the maximum profit Delta can earn by flying the Embraer 175? Should they offer different student v business passenger pricing? What pricing should they sell seats at? What quantity will they sell, what will be their revenue, and what will be their profit? If you answered yes in (5a), give price and quantity for each the youth and business segment. What is the maximum profit Delta can earn by flying the MD-88? Should they offer different student v business passenger pricing? What pricing should they sell seats at? What quantity will they sell, what will be their revenue, and what will be their profit? If you answered yes in (5a), give price and quantity for each the youth and business segment. Which aircraft should Delta use? Why? Please explain and support your answer. Say Delta does decide to use group-based pricing to differentiate between the business and youth segments, what are potential challenges to that strategy or problems to implementing it you could foresee? How could you mitigate those?
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