Suppose that the market for air travel between Chicago and Dallas is served by just airlines, United and American. An economist has studied this market and has estimated that the demand curves for round-trip tickets for each airline are as follows: Qd U = 10,000 - 100PU + 99PA (United’s demand) Qd A = 10,000 - 100PA + 99PU (American’s demand) where PU is the price charged by United, and PA is the price charged by American. a. Suppose that both American and United charge a price of $300 each for a round-trip ticket between Chicago and Dallas. What is the price elasticity of demand for United flights between Chicago and Dallas? b. What is the market-level price elasticity of demand for air travel between Chicago and Dallas when both airlines charge a price of $300? (Hint: Because United and American are the only two airlines serving the Chicago–Dallas market, what is the equation for the total demand for air travel between Chicago and Dallas, assuming that the airlines charge the same price?)
Suppose that the market for air travel between Chicago and Dallas is
served by just airlines, United and American. An economist has studied this
market and has estimated that the
each airline are as follows:
Qd
U = 10,000 - 100PU + 99PA (United’s demand)
Qd
A = 10,000 - 100PA + 99PU (American’s demand) where PU is the
charged by United, and PA is the price charged by American.
a. Suppose that both American and United charge a price of $300 each for a
round-trip ticket between Chicago and Dallas. What is the price elasticity
of demand for United flights between Chicago and Dallas?
b. What is the market-level price elasticity of demand for air travel between
Chicago and Dallas when both airlines charge a price of $300? (Hint:
Because United and American are the only two airlines serving the
Chicago–Dallas market, what is the equation for the total demand for air
travel between Chicago and Dallas, assuming that the airlines charge the
same price?)
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