Answer to Question #151019 in Microeconomics for Annecole castor

Question

You are an analyst employed by an airplane manufacturer that last year sold 50,000 ATR-72
aircrafts at $500,000 each. Your market research indicates that:
i) the price elasticity of demand for your aircrafts in −0.3. (or +0.3 in absolute value);
ii) the income elasticity of demand for your aircrafts is +2.7; and
iii) the cross price elasticity for your aircrafts with respect to the price of a comparable jet
manufactured by a competitor is +2.2.

a) Suppose that you expect a ceteris paribus decrease in average incomes of 7% this year
compared to last year. How many aircrafts do you estimate that your company will sell this
year? How will it impact total revenues?

Answer 1

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