I fly for business in the front, and personal trips down the back (wife and three kids). Often there is no intermediate choice which makes the relative difference so stark.
BA have actually delivered a useable solution with premium economy, as have Virgin, but neither have gone as far as it would appear EVA did a number of years ago (don't know if they do it now), when I flew on a 744 with no less than five different class configurations on it at different price levels.
A quick logical question on the room aspect. On many long haul flights, a ticket may be 500 pounds in economy, 3000 pounds in business and 5000 pounds in first. And yet neither the business pax or first pax is using 6 and 10 times the space and weight of an economy pax respectively.
My feeling is that with economy so difficult to live with for frequent travellers, rather than once in a lifetime holidaymakers, that those travellers will pay a "premium" for anything else which makes the travel bearable, and the airlines can generate better revenue return by square metre of floor space and kilo of weight
carried. The spin off from this is that economy pax are actually subsidised by premium pax.
If you don't believe this, check air fares from the early 1980's. London to Sydney, for example, was often more expensive in pounds then than it is now (so taking inflation in to account, at least twice as expensive if not more so, then than today). This was probably because the premium classes were little better than todays premium economy and did not command much higher prices than economy, ergo no subsidy.
It could be argued that if airlines used smaller aircraft and concentrated on premium classes, with a smaller, enhanced and more expensive economy section, they would in actual fact be more cost effective. Premium would not subsidise economy (better bottom line margins), economy would pull its own weight (actually generate margins rather than just covering fuel/ANC etc) and generate greater income per seat, operational and overhead costs would reduce with lower pax numbers per unit of revenue etc etc.
This would however mean that granny would be less likely to visit the grand kids in Melbourne, and that stag nights would once again be a little closer to home. Airlines would be run as profit centres and not mass transit systems, so joe average would loose out in global mobility. Global tourism would take a hit of course, but perhaps carbon emmissions would be down and less flag carriers would be in bankruptcy.
It may be a scenario where less could be more !