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People differ in their willingness to pay for air travel and airlines would lik...

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People

differ in their willingness to pay for air travel and airlines would like to

charge different prices to different people. Airlines typically attempt to

divide passengers into two types: leisure travellers and business travellers. 

Suppose that an airline is charging $250 per ticket for all passengers on

flights between Sydney and Melbourne. The accompanying table provides information on quantity demanded for air travel for leisure travellers and

business travellers.

Leisure travellers

Business travellers

Price per ticket

Quantity of tickets per flight

Price per ticket

Quantity of tickets per flight

$250

150

$250

150

$350

75

$350

125

1. Assume demand for both passenger groups is linear. Calculate price elasticity of demand at a price of $250.

Note: Please report a positive value and round your answer to 2 decimal places.

Price elasticity of demand for leisure travellers: 

Price elasticity of demand for business travellers: 

2. At a price of $250, leisure travellers are relatively 
while business travellers are relatively 
.

3. Suppose the airline decides to increase the price of a ticket from $250 to $350. What would happen to the airline's revenue?

Note: Please do not put symbols ($ or , ) in your numerical response.

Revenue from leisure travellers would 
by $ and revenue from business travellers would 
by $.

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