Ba 523 - Demand & Supply Analysis

Assignment 1: Demand & Supply Analysis
-Daniel Kiesling-
BA 523

1a)

TR = P*Q
TR = P(2000-P)
dTR/dQ = 2000-2P

P=$1000        

Q = 2000-1000
Q = 1000                 

To maximize total revenues, the ticket price must be set at $1000. At this price,

        The demand will be 1000 passengers, thus only half of the ship will be filled.

1b)

MC = MR
500 = 2000-2Q
Q=750

P=2000-750
P=$1250

1c)

        TP = P*Q
        TP = (750)*(1000)
        TP=$7500

1d)  

In the short team, we will be more in dept. We may be in trouble for the short term. However, we may be okay in the long run by making small profit margins and making up the difference in the fixed cost. I believe we should stay in business.

2a)

The following demand function can be determined by the y intercept (Q=0) and amount of change in price per unit of demand

P = 20 – 2Q
Q = 10 - .5P

2b)

The following supply function can be determined by the y intercept (Q=0) amount of change in supply per unit of demand

P = 2 + Q
Q = P-2

2c)

Qd = Qs
10-.5P = P – 2
12 = 1.5P
Equilibrium Price = $8

        Q = P-2
        Q = 6

3)

RPM = Passengers*Miles = 240*4,000 = 960,000

ASM = Airline Seats * Miles = 300*4,000 = 1,200,000

Yield = Revenue/RPM = 200,000/960,000 = .208 = 20.8%

Unit Cost = Cost/Seats Available = 160,000/300 =$533.33

Unit Revenue = Revenue/ Seats Available = 200,000/300 =$666.67 

Load Factor = RPM/ASM = 960,000/1,200,000 = .8

Break Even Load Factor = CASM/Yield   =  (Cost/ASM)/Yield = (160,000/1,200,000)/.208 = .641

4a)

Qd = Qs
140 – P = -160 +4P
300 = 5P
Initial Equilibrium Price=$60

Qs = -160+4P
Qs = -160+4(60)
Initial Equilibrium Quantity = 80

4b) New Qs = -160 + 4(P+5)

Qd = Qs
140 – P = -160 + 4(P+5)
280 = 5P
After Tax Equilibrium Price = $56

Qd = 140 – P
After Tax Quantity = 84