Answer to Question #218943 in Microeconomics for 5ty

Question

Airbus makes 50 planes a year, which sell for $50 million each. If Airbus raises its price, Boeing will leave its prices unaltered, so Airbus loses market share. It faces an elastic demand curve. However, if Airbus cuts its price below $50 million, Boeing is forced to match the price cut, so quantity demanded increases only to the extent that additional plane orders are placed when planes are cheaper. Each company faces inelastic demand when it cuts the price. Draw the demand curve that Airbus thinks it faces.

Answer 1

a.Elastic demand curve:

If change in price causes a bigger percentage change in demand the following curve will form.

P is the price

D is the demand

q is the quantity

b. Inelastic demand curve:

If change in price causes a small percentage change in demand the following curve will form