FlyAway Airlines has regular flights between San Diego and San Francisco. It can treat business and pleasure travelers as separate markets by demanding advance purchase and Saturday night stay-over for pleasure travelers. Suppose that it notes a demand function of Q = 16 - p for business travelers and a demand function of Q = 10 - p for pleasure travelers, and that it has a cost function for all travelers of C(Q) = 10 + (Qp + Qb)^2.
C(Q) refers to the sum of the Q's of the respective passenger groups.
a) How much should it charge in each market to maximize its profit?
b) Now assume that the maximum capacity on the planes (the total of business and pleasure travelers) is 4. What should it charge in each market now?