Suppose that the market for air travel between Chicago and Dulles is served by just two airlines: Delta and Southwest. An economist has studied this market and has estimated that the demand curves for round trip tickets for each airline are as follows:
QD = 10,000 - 100PD + 99PS
QS = 10,000 - 100PS + 99PD,
where the subscripts D and S denote Delta and Southwest.
a. Suppose that both airlines charge a price of $300 for a round trip ticket. What is the price elasticity of demand for Delta flights between Chicago and Dulles?
b. What is the cross-price elasticity of demand for Delta flights with respect to the price of Southwest flights?
c. What is the market level price elasticity of demand for air travel between Chicago and Dulles when both airlines charge $300.