You are an analyst employed by an airplane manufacturer that last year sold 40,000 ATR-72
aircrafts at $100,000 each. Your market research indicates that:
I. the price elasticity of demand for your aircrafts in −0.5. (or +0.5 in absolute value);
II. the income elasticity of demand for your aircrafts is +3.7; and
III. the cross price elasticity for your aircrafts with respect to the price of a comparable jet
manufactured by a competitor is +1.6.
A. Suppose that you expect a ceteris paribus decrease in average incomes of 10% 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? 6 mark
"E(ID)=\\frac{\\Delta Quantity}{\\Delta Income}"
"\\frac{Quantity2 - Quantity2}{Quantity2+Quantity1} = -37"
"\\frac{\\Delta Quantity}{-10} = 3.7"
"\\Delta Quantity2=-37"
"-37=\\frac{Quantity2-Quantity2}{QQuantity2+QQuantity2}\\\\\n=\\frac{Quantity22-40000}{Quantity22+40000}"
"-38Quantity2=-1520 000"
"Quantity2=40000\\\\\nQuanitity2=40000"
Comments
Leave a comment