Coconut Airways is suffering from low revenues and inadequate profits. The managing director reports the following facts about the company's performance for the month.
Average fare: $100
Number of passengers: 2000
Price elasticity: -1.5
The company is proposing a fare increase to $110. Should the company go ahead with the increase? Explain.
Average fare: $100, number of passengers: 2000, Price elasticity: -1.5. The company is proposing a fare increase to $110. As the price elasticity is -1.5, demand is elastic, so the increase in price will tend to decrease in total revenue, so the company shouldn't go ahead with the increase