The following graph shows segments of Southwest Airlines%u2019 demand for round-
ID: 1177222 • Letter: T
Question
The following graph shows segments of Southwest Airlines%u2019 demand for round-trip tickets in the Houston -Atlanta city-pair market. Continental Airlines, the only other airline in this specific market, and Southwest Airlines both charge $200 per round-trip ticket.<?xml:namespace prefix = o />
a. Managers at Southwest Airlines believe reducing ticket price to $100 when continental Airlines also lowers its price to $100 will result in sales of __________ tickets per month. If Continental keeps its price at $200 when Southwest lowers its price to $100, Southwest can expect to sell ___________ tickets per month.
c. Which demand is more elastic, D%u2019SWDSW or d%u2019SWdSW? Why.
d. Now assume that each firm in this market believes that the rival (the other firm) will not follow a price increase but will follow a price decrease. In that case, Southwest%u2019s demand curve for round-trip ticket will be represented by d%u2019SWADSW. Also assume that to maximize total profit, Southwest Airlines charges $200 per round-trip ticket and sells 2,500 tickets.
e. If Southwest experiences a slight increase in its marginal cost of production, what should the management do to the ticket price in response to the increase in marginal cost of product? (In other words, should the management increase, decrease or leave unchanged the round-trip ticket price) Why?
Explanation / Answer
a)3500 , 4500 b)1000,2000 c)d%u2019SWdSW is more elastic as its slope is less. d)southwest demand =2500 e)leave unchanged as if it increases price then its demand decreases by more as it is more elastic
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.