Question

The weekly demand and supply functions for seats on flights between Syracuse and Boston have been estimated as follows:

Qd = 1600 - 2.5 Price + .040 Income - 4 Weather + 1.20 Pa (where Pa is the price of alternative means of travel)

Qs = -50 + 4.25 Price

Assuming: Income ( I ) = 6250, Weather (W) = 75, Pa = $250,

a. Write the equation for the demand curve.
b. Determine the equilibrium price and quantity.
c. How does an increase in the weather temperature (W) (from 75 to 115) affect the equilibrium price and quantity?
d. Keeping the weather temperature (W) at 75, determine the effect of an increase in the price of an alternative form of transportation, Pa, from $250 to $350 on the equilibrium price and quantity.
e. Now keeping the weather temperature at 75, Pa at 250, and income at $6250, use your demand function to write the total revenue (TR) equation.
f. Using the same demand function, also write the marginal revenue (MR) function.
g. Using the same demand function, determine at what price level the total revenue (sales) on these flights would be maximized.