Question

Suppose an airline announces that its earnings this year are lower than expected due to reduced ticket sales. The airline spokesperson gives no information on how the company plans to turn
21

things around, he only mentioned that the current demand curve is given by − − 4 = 0

3

and the supply curve is given by 2 + 8 − 43 = 22

Find the equilibrium points of the airlin

Answer 1

Answer:

$(q,p)=(1.948,4.156)$

Step-by-step explanation:

Given

$p^2 - \frac{1}{3}q-4p=0$ --- demand curve

$2q + 8p -4p^3=2p^2$ ------ supply curve

Required

The equilibrium point

To do this, we make use of the graphical method (see attachment for the demand and supply curve)

The points of intersection of both curves on the attached plot are:

$(q_1,p_1)=(1.948,4.156)$

$(q_2,p_2)=(0,0)$

$(q_3,p_3)=(-0.8766,0.0744)$

$(q_3,p_3)=(0.3802,-0.0314)$

Of the 4 points, only the points where $p,q>0$ can be selected as equilibrium points

The only point that satisfies this condition is:

$(q_1,p_1)=(1.948,4.156)$

Hence, the equilibrium points of the airline is: $(q,p)=(1.948,4.156)$