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Airline Price Elasticity of Demand Suppose an airline increases its average ticket price from JFK to CDC from $435 to $515, and consequently the number
Airline Price Elasticity of Demand Suppose an airline increases its average ticket price from JFK to CDC from $435 to $515, and consequently the number of seats sold drops from 800 to 735: a) What is the price elasticity of demand for this market? Use the midpoint method. b) What is the interpretation of that price elasticity of demandwhat does it mean? c) Is the demand elastic, unitary elastic, or inelastic in this price range? d) Suppose the price elasticity of demand calculated in Part (a) is the exact number representing passengers' responsiveness to a price change for this airline for this market. If there is a 10 percent decrease in the ticket price, what would the percentage change in the quantity demanded be equal to? If the ticket price was to rise by 15 percent, what would the percentage change in the quantity demanded be equal to? e) What happens to total revenue of the airline when the price rises from $435 to $515? How is this related to the price elasticity of demand for this market? f) What could cause JFKCDC to have this elasticity of demand calculated in Part (a) above? g) Consider the market BOS-CDG and suppose the crossprice elasticity of demand between these two markets (JFKCDC; and BOSCDG) is equal to 2. Would these markets be substitutes or complements? Why
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