Delta Airlines has estimated that the crossprice elasticity

Delta Airlines has estimated that the cross-price elasticity of demand between the number of tickets sold for their early morning flight Denver-Atlanta and the price of their early afternoon flight Atlanta-JFK is -1.6. Delta would like to increase the quantity of tickets in the Denver-Atlanta flight by 20%. Based on this information, Delta can accomplish this by

An increase in the price of the Atlanta-JFK flight by 20%.

An increase in the price of the Atlanta-JFK flight by 12.5%.

A decrease in the price of the Atlanta-JFK flight by 12.5%.

A decrease in the price of the Atlanta-JFK flight by 20%.

*Need Explination please*

Solution

Correct Answer:

C.

Working note:

Cross price elasticity = % change in quantity of early morning flight / % change in price of afternoon flight

-1.6 = 20%/% change in price of afternoon flight

% change in price of afternoon flight = 20%/(-1.6) = -12.5%

So, decrease in the price of afternoon flight (Atlanta-JFK) by 12.5%. will lead to increase in quantity of 20% of early morning flight (Denver – Atlanta).