. The general public\'s demand for flights to Florida has an elasticity of -2 al
ID: 1197241 • Letter: #
Question
. The general public's demand for flights to Florida has an elasticity of -2 all year round. A
monopolistic airline has been optimally charging everyone $360 for a round trip. Next, the
airline finds out that during spring break, the price elasticity of students' demand for flights to
Florida is -3. Assuming the airline can vary the number of daily flights, what should it do to
increase its profit?
a, The airline should give students a price discount.
b. the airline should charge students a higher price.
c. The airline should reduce its price for everybody.
d. The airline should charge students the same price as it charges everyone else, $360.
why?
Explanation / Answer
Given that the elasticity all round the yearis -2 and thatduring spring break the elasticity of demand of students is -3, meke one thing sure that the demand is more elastic for students during spring break than all round the year. This is know by the values of elasticity. The more the absolute value of elasticity greater than 1, the more elastic the demand is for a product.
With a known fact the demand is elastic, it can be inferred out that with a slight change in price, the quantity demanded is affected tremendously. So in order to increase profit, if the airlines decreses its price little bit, the demand will go up by great deal.
So rather than giving this option to everyone, the airlines should give students a special price offer (and a lower price ofcourse) to increase its revenue.
Option A is the correct answer.
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