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Answer to Question #42734 in Microeconomics for Kia

Question #42734


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.
Expert's answer
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

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