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J. Cigliano (“Price and Income Elasticities for Airline Travel: The North Atlantic Market,” Business Economics, September 1980) estimated the price elasticity of demand for regular (full-fare) travel in coach class in the North Atlantic market to be class in the North Atlantic market to be He also found the price elasticity of demand for excursion (vacation) travel to be about Suppose Transatlantic Airlines faces these price elasticities of demand, and that the elasticities are constant; that is, they do not vary with price. Since both are coach fares, you may also assume that the marginal cost of service is about the same for business and vacation travelers. Suppose an airline facing these demand elasticities wants to set PR (the price of a round-trip ticket to regular business travelers) and PV (the price of a round-trip ticket to vacation travelers) to maximize profit. What prices should the firm charge if the marginal cost of a round trip is 200?

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