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:

Natural Resources

Materials or substances such as minerals, forests, water, and fertile land that exist in nature and can be used for economic gain.

Opportunity Cost

The act of losing possible benefits from other routes when a single path is chosen.

Trade

The exchange of goods and services between individuals, businesses, or countries, which can be domestic or international in nature.

Corn

A cereal plant that yields large kernels on a cob, used as food for humans and livestock and as a raw material in industry.