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Price Elasticity of Demand

   

Added on  2019-09-23

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1.The price elasticity of demand for tickets on the flight-Change in price: from $200-$350Change in demand: from 735-713Ep = Price elasticity of demand = Percentage change in quantity demanded /Percentage change in price= (-22/735) / (150/200)= -0.032.Rosie's Airline has a non-stop flight three times a day from San Diego to Phoenix. At $50 per ticket, the airline sells 75 tickets. The new manager of Revenue Management thinks he can increase total revenue by reducing the price of the ticket by $5 to $45. At the price of $45, the airline sells 80 tickets.Will reducing the price result in an increase in total revenue?Answer 2Ep = Price elasticity of demand = Percentage change in quantity demanded /Percentage change in price= (5/75) / (-5/50)= -0.66Elasticity is less than 1 which, means that demand is inelastic as the % change in Quantity demanded is less than % change in price. So, reducing the price will not result in increase in TR because when the demand is inelastic, the revenues can be increased by increasing the product’s price. When the demand is inelastic, the consumers are not very much price sensitive.3.Is the price elasticity of demand elastic or inelastic? Elasticity is less than 1 which, means that demand is inelastic as the % change in Quantity demanded is less than % change in price.4.What will be the difference in total revenue if the price is reduced? If the price is reduced, the total revenue will decline. Reducing the price will not result in increasein TR because when the demand is inelastic, the revenues can be increased by increasing the product’s price. When the demand is inelastic, the consumers are not very much price sensitive.5.Explain what impact price elasticity of demand has on revenue.
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