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##### MBAA 523 Problem Set 3 Assignment

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**Question**

Question;If;the price for some good increases by 10% and the quantity demanded falls by 5%;(a) what is the price elasticity of demand, and (b) is this elastic or;inelastic?;Last;year the US low-cost-carrier Spirit Airlines entered the Dallas-Chicago market.;The average ticket price for all airlines servicing the route fell from $200 to;$180. After Spirit?s entry, the number of passengers increased from 700 to 800;per day (these number are hypothetical, but reasonable). Calculate the price;elasticity of demand between these two points. Show the computation.;An;airline consulting firm as determined that the income elasticity for leisure;air travel in China is 1.5. If incomes increase by 5% next year, what is the;percentage change in leisure passengers expected next year? Show the;computation.;The;state operates a toll road which currently charges $1.00 per car with 100,000;cars using the road daily. The state wishes to raise an additional $10,000 per;day for road maintenance. A newly hired financial analyst proposes raising the;toll to $1.10 per car. The analyst reports to you. Will you accept and forward;her recommendation to your boss?;The;demand curve for a product is given by Qdx = 1,000 ? 2Px;+.02Pzwhere Pz = $400. (Hint: If you?re not comfortable with the calculus;alternatives, compute Q at the given prices, then again with a 1% increase in;price. Then figure percentage change in Q over the percentage change in P;%?Q/%?P).;What is the own price elasticity;of demand when Px = $154?;Is the demand elastic or inelastic?;What would happen to the firm?s revenue if it decided to charge a;price below $154?;What is the own price elasticity;of demand when Px = $354?;Is the demand elastic or inelastic?;What would happen to the firm?s revenue if it decided to charge a;price below $354?;What is the cross-price;elasticity of demand between good X and good Z when Px =;$154? Are good X and good Z;substitutes are complements?;The;data are real US Gross Domestic Product (in billions of dollars) and Domestic;Revenue Passenger Miles (in millions) for the years 1996 through 2012. Below;this table is the MS Excel Summary Output regressing RPMs against GDP. Using MS;Excel or another similar application, build a scatter plot and insert the;regression line and equation. Next, interpret the regression output and explain;the regression statistics. Be certain that the regression coefficients match;those in the scatter plot equation. Finally, use the regression equation to;predict RPMs for 2013 and 2014 assuming GDP grows by 3% each year from 2012. You;may wish to check the actual RPMs to see how closely your estimate matched. Note: To build a scatter plot in Excel, select and;copy the GDP and RPM data into Excel, select the data in Excel, then use;Insert/Scatter to create a scatter plot. Finally, scroll down Chart Layout to;select the format that creates a regression line and formula. Use the Excel;Help function as needed.;Year;GDP;RPM;1996;8,100.2;419.07;1997;8,608.5;438.42;1998;9,089.1;448.58;1999;9,665.7;472.96;2000;10,289.7;500.12;2001;10,625.3;472.60;2002;10,980.2;469.96;2003;11,512.2;492.73;2004;12,277.0;542.82;2005;13,095.4;569.24;2006;13,857.9;574.52;2007;14,480.3;592.33;2008;14,720.3;568.25;2009;14,417.9;538.98;2010;14,958.3;552.85;2011;15,533.8;563.65;2012;16,244.6;568.70;SUMMARY OUTPUT;Regression Statistics;Multiple R;0.926457;R Square;0.858323;Adjusted R Square;0.848878;Standard Error;21.52755;Observations;17;ANOVA;df;SS;MS;F;Significance F;Regression;1;42114.69;42114.69;90.87497;9.342E-08;Residual;15;6951.532;463.4355;Total;16;49066.22;Coefficients;Standard Error;t Stat;P-value;Lower 95%;Upper 95%;Intercept;275.7148;25.82438;10.67653;2.1E-08;220.6713974;330.7581059;GDP;0.019662;0.002063;9.532837;9.34E-08;0.015265596;0.02405796

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