Reference no: EM132456666
The Eastern Shuttle, Inc., is a regional airline providing shuttle service between New York and Washington, D.C. An analysis of the monthly demand for service has revealed the following demand relation:
Where Q is quantity measured by the number of passengers per month, P is price ($), POG is a regional price index for other consumer goods (1967 = 1.00), IB is an index of business activity, and S, a binary or dummy variable, equals 1 in summer months and 0 otherwise.
a. Determine the ordinary and inverse demand curves facing the airline during the winter month of January if POG = 4 and IB = 250.
b. Determine the demand curve facing the airline, quantity demanded, and total revenues during the summer month of July if P = $100 and all other price-related and business activity variables are as specified previously.
c. At what quantity will Eastern maximize its summer sales revenue from tickets? What price would be required to maximize summer revenues?
d. Is the demand for shuttle services during the summer more or less elastic than during the rest of the year? How do you know?