In a past fare war, U.S. Air reduced the price of its Charlotte, North Carolina, to New York City round-trip fare from $198 to $138 to match American Airlines. U.S. Air did so reluctantly, saying it would cost the company millions of dollars in revenue
American, on the other hand, believed the fare cut would increase its revenue. What different assumptions about the underlying price elasticity of demand did each airline believe true?
U.S. Air must have believed demand in this price range to be inelastic, so that a fare cut would lead to a relatively small increase in quantity demanded. American must have believed the opposite, that the fare cut would stimulate a more than proportional, or elastic, consumer response.
You might also like to view...
Environmental economics
a. is concerned mainly with the residual flow from economic activity back to nature b. focuses on the flow of resources from nature to economic activity c. recognizes that the flow of residuals back to nature is preventable d. none of the above
Which of the following is not included in the sum of national income?
A. Interest B. Rent C. Depreciation or consumption of fixed capital D. Profits and losses
A price floor is:
A. a legal maximum price. B. a legal minimum price. C. a legal maximum quantity that can be sold at a particular price. D. a legal minimum quantity that can be sold at a particular price.
A pure monopoly is defined as having only one seller
a. True b. False Indicate whether the statement is true or false