Question 1 Suppose that a linear market demand curve is given by the equation P = a – b Q. Show that unitary elastic price-quantity combination is at the mid-point of the curve.
Question 2 Refer to the article “Pearson airport express trains 90 per cent empty” in The Globe and Mail, by Adrian Morrow of September 23, 2015.
What is the short-run profit of the UPX on an average day?
With the information given in the article, estimate the daily demand function for the UPX. You can make the following assumptions:
The demand function is a straight line.
The maximum carrying capacity of the service is equal to the market demand when the ticket price is zero.
Find the supply curve.
Since the daily operation cost is almost fixed, the marginal cost of taking one more customer is zero. Consequently, the company maximize profit by maximizing total revenue. Using the result in Question 1 ablove, what price should UPX charge for a single trip?
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