|Question||Suppose that the market for air travel between Chicago and Dallas is served by just two airlines, United and American. An economist has studied this market and has estimated that the demand curves for round-trip tickets for each airline are as follows: QdU = 10,000 ? 100PU + 99PA (United’s demand) QdA = 10,000 ? 100PA + 99PU (American’s demand) where PU is the price charged by United, and PA is the price charged by American.
a) Suppose that both American and United charge a price of $300 each for a round-trip ticket between Chicago and Dallas. What is the price elasticity of demand for United flights between Chicago and Dallas?
b) What is the market-level price elasticity of demand for air travel between Chicago and Dallas when both airlines charge a price of $300?