Suppose That the Price Elasticity of Demand for Airline Flights

question 14

Multiple Choice

Suppose that the price elasticity of demand for airline flights between two cities is constant and equal to -1.5.If 4 airlines with equal costs are in Cournot equilibrium for this industry, then the ratio of price to marginal cost in the industry is

• A)8/7.
• B)9/8.
• C)7/6.
• D)3/2.
• E)None of the above.

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Definitions:

Surplus

In economic terms, a situation where the quantity of a good or service available exceeds the quantity demanded at a specific price.

Binding Price Floor

A government or regulatory-imposed price control set above the equilibrium price, which prevents the market price from falling below that level.

Potential Sellers

Potential sellers are individuals or entities that may be willing to sell goods or services under the right conditions.

Price Floor

A government-imposed minimum price charged on a product, below which it cannot be sold to prevent market prices from falling too low.