MANAGERIAL ECONOMICS

CASE STUDY:1
SUBMITTED BY:
Name: Snehil Dixit
Class: MBA (General)
Enrollment No: A01011!1"#
Case Details: As $er the %ase &i'en there is %onsi(era)le amo*nt o+
tra'el )et,een Bom)a- an( Delhi. as it is one o+ the most intensi'el-
tra'ele( ro*tes in the %o*ntr-/ Gi'en to *s is the 0ri%e Elasti%it- o+
Deman( +or the air tra'el )et,een Bom)a- an( Delhi is a)o*t 0/12
Question3 S*$$ose an e%onomi% %ons*ltant sa-s that the (eman( %*r'e
+or air tra'el )et,een Bom)a- an( Delhi is as sho,n in the (ia&ram
)elo,/ Is this (ia&ram in a%%or( ,ith s*r'e-4s +in(in&s5 6h- or ,h-
not5
Answer3 Elasti%ities are s*mmar- meas*res o+ $eo$le7s $re+eren%es
re+le%tin& sensiti'it- to relati'e $ri%e le'els an( %han&es in a reso*r%e3
%onstraine( en'ironment/ Yes8 I a&ree that the &i'en (ia&ram is in a%%or(
,ith the s*r'e-4s +in(in&s )e%a*se the $ri%e elasti%it- o+ (eman( +or air
tra'el )et,een the t,o %ities is mentione( (0/12) ,hi%h sho,s the
(eman( is less than *nitar- elasti% i/e/ the %han&e in n*m)er o+ ti%9ets
(eman(e( +or tra'el )et,een M*m)ai an( Delhi is s*%h that total
ex$en(it*re on the air tra'el (e%reases ,hen $ri%e +alls an( total
ex$en(it*re in%reases ,hen $ri%e rises an( hen%e the (eman( %*r'e ,ill
)e stee$ as is sho,n in the +i&*re/
Question3 S*$$ose the airline (o*)le the $ri%e o+ the ti%9et )et,een
Bom)a- an( Delhi/ 6ill this $ri%e in%rease a++e%t the (eman( %*r'e +or
air tra'el )et,een the t,o %ities5 I+ so8 in ,hat ,a-5
Answer3 The (eman( %*r'e ,ill sta- stee$ an( not a++e%te( tho*&h the
sit*ation im$lies that the total ex$en(it*re ,ill in%rease in res$onse to
in%rease in $ri%e o+ the ti%9et/ There ,ill )e merel- a %han&e in the
n*m)er o+ ti%9ets (eman(e( )*t not )- a lot )e%a*se the (eman( is
inelasti% (E(:1)
Question- S*$$ose that a se'ere re%ession o%%*rs/ 6ill this a++e%t the
(eman( %*r'e +or air tra'el )et,een the t,o %ities5 I+ so8 in ,hat ,a-5
Answer- ;e%ession &enerall- +ollo,s *$ ,ith re(*%tion in the in%ome
le'el o+ the %ons*mer/ B*-ers7 in%ome is one o+ +i'e (eman(
(eterminants that shi+t the (eman( %*r'e ,hen the- %han&e/ The other
+o*r are )*-ers7 $re+eren%es8 other $ri%es8 )*-ers7 ex$e%tations8 an(
n*m)er o+ )*-ers/ 6hen an- other +a%tor other than the $ri%e o+ the
<*antit- o+ a $ro(*%t is %han&es8 it res*lts in the shi+t o+ the (eman(
%*r'e/ In this %ase a (e%rease in )*-ers7 in%ome (*e to re%ession ,ill
%a*se a (e%rease in (eman( an( a le+t,ar( shi+t o+ the (eman( %*r'e
Question- Be%a*se o+ the mar9et in%rease in $ri%e o+ the =et +*el (an(
other thin&s)8 the %ost o+ $ro'i(in& air trans$ortation )et,een Bom)a-
an( Delhi has %han&e( a$$re%ia)l- in the re%ent (e%a(es/ Does s*%h a
%han&e in the %ost a++e%t the (eman( %*r'e +or air tra'el )et,een these
%ities5 I+ so8 in ,hat ,a-5
Answer- 6hile the (eman( %*r'e is not (ire%tl- relate( to $ri%e o+ =et
+*el8 the $ri%e $oints that it (e$i%ts8 ,hi%h is the $ri%e %*stomers a%t*all-
$a-8 in%or$orate $ri%es o+ =et +*el an( other thin&s($ro(*%tion %ost)/The
%ost +i&*res on a (eman( %*r'e %an re$resent ,hat a )*siness %har&es its
)*-ers/ In either %ase8 the $ri%e nee(s to re$resent a s*staina)le $ro+it/
6hen $ri%e o+ =et +*el rises8 the (eman( %*r'e remains the same an(
allo,s +or a %om$arison )et,een the $ro+its that ,o*l( %ome +rom a
hi&her $ri%e $oint ()*t (e%rease( (eman() an( stea(- (eman( ,ith a
lo,er $ro+it mar&in on ea%h ti%9et sol(/