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Question 2 (2 + 3 = 5 marks) Suppose that the market for air travel between New York and San Francisco is served by just
Question 2 (2 + 3 = 5 marks) Suppose that the market for air travel between New York and San Francisco is served by just two airlines, Delta (D) and Southwest (SW). An economist has studied this market and has estimated that the demand curves for round-trip tickets for each airline are as follows: QD = 10,000 -100PD + 99P sw (Delta's demand) Qsw = 10,000 - 100P sw + 99PD (Southwest's demand) where PD is the price charged by Delta, and Psw is the price charged by Southwest. a) Suppose that both Delta and Southwest charge a price of $300 each for a round-trip ticket between New York and San Francisco. What is the price elasticity of demand for Delta flights between New York and San Francisco? b) What is the market-level price elasticity of demand for air travel between New York and San Francisco when both airlines charge a price of $300
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