Question
The original demand function is as follows: D1=3000-200P1+30P2+2Y Where D1is annual demand for plane trips, P1is price of plane trips, P2is price of train trips
The original demand function is as follows:
D1=3000-200P1+30P2+2Y
Where D1is annual demand for plane trips, P1is price of plane trips, P2is price of train trips and Y is average annual consumer income. Assume the supply of plane trips by the industry can be described by:
SI=300P1
Where S1is the number of plane trips, and the market clears so:
DI=S1
Assume the average annual income, Y, is $80,000 and the price of train trips isP2= $500. Further, assume the market always clears, there are no empty planes and trains, and producers are competitive. Ignore externalities such as pollution.
But the difficult part is section C:
With the introduction of a new supply curve S2.
S2=350+50P1
Question
The government decided not to apply the tax, and a large airline company who can dominate the market starts to offer trips. Its supply curve (called marginal cost curve) for plane trips is different than the supply curve for the previous companies in the market:
S2=350+50P1
1.What will be the new price of plane trips with the new supplier in the market?
2.How many plane trips will now be provided by the airline companies operating before the large company entered the market?
3.How many plane trips will now be provided by the new large airline company?
4.How many plane trips will now be produced in total?
5.Please present the relevant diagram
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