question archive Given the demand function : D1=3000−200P1+30P2+2YD1=3000−200P1+30P2+2Y, where D1D1 is annual demand for plane trips, P1P1 is price of plane trips, P2P2 is price of train trips and YY is average annual consumer income
Given the demand function : D1=3000−200P1+30P2+2YD1=3000−200P1+30P2+2Y, where D1D1 is annual demand for plane trips, P1P1 is price of plane trips, P2P2 is price of train trips and YY is average annual consumer income
Subject:MarketingPrice:2.88 Bought15
Given the demand function :
D1=3000−200P1+30P2+2YD1=3000−200P1+30P2+2Y,
where D1D1 is annual demand for plane trips, P1P1 is price of plane trips, P2P2 is price of train trips and YY is average annual consumer income. Assume the supply of plane trips by the industry can be described by S1=300P1S1=300P1, where S1S1 is the number of plane trips, and the market clears so D1=S1D1=S1.
Assume the average annual income, YY, is $80,000 and the price of train trips is P2=$500P2=$500. Furthermore, assume the market always clears, there are no empty planes and trains, and producers are competitive. Ignore externalities such as pollution.
The government decided not to apply the tax, and a large airline company who can dominate the market starts to offer trips. Its supply curve (called marginal cost curve) for plane trips is different than the supply curve for the previous companies in the market S2=350+50P1S2=350+50P1.
What will be the new price of plane trips with the new supplier in the market?
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It is given in the question that a large company is dominating the market, let us suppose that the large company will slowly take the whole market and other companies will be out of the market. Then the supply of the company will become the supply of the market.
Means, S2=350+50P1S2=350+50P1 will become the supply function of the whole industry
As, assuming that the supply and demand will met, we will solve the following equation for the computing the new price.
350+50P1=3000−200P1+30P2+2Y350+50P1=3000−200P1+30P2+2Y
250P1=2650+(30∗500)+(2∗80000)250P1=2650+(30∗500)+(2∗80000)
P1=$710.60P1=$710.60
This means that after dominating and creating a monoploy, the company can raise ticket price to $710.60
