Entry of new airlines to the CARICOM region is severely restricted and as a consequence regional airlines charges higher airfares than US airfares for routes of comparable distances. An airline expert estimates the annual air travel demand between Trinidad and Antigua to be:
Q = 1,000 – 10P; where Q is the number of trips in (000’s) and P is the one-way fare in US dollars. In addition, the long-run average cost (one-way) per passenger is estimated to be $50
Do you have a question?
To answer this question, we need to consider the relationship between airfare and travel demand. The given equation Q = 1,000 - 10P represents the demand function for air travel trips between Trinidad and Antigua. In this equation, Q represents the number of trips (in thousands), and P represents the one-way fare in US dollars.
According to the equation, as the fare (P) increases, the number of trips (Q) decreases. This inverse relationship between price and quantity is typical of demand functions, where lower prices tend to increase demand.
To determine the equilibrium fare and demand, we need to find the point where the supply and demand curves intersect. However, the supply curve is not provided in this information. Therefore, we cannot determine the exact equilibrium fare and demand from this information alone.
However, we can make some observations based on the given equation and expert estimation. The expert estimated the long-run average cost per passenger to be $50. This cost represents the average expenditure required for each additional passenger. Therefore, the airline needs to cover this cost along with other operational costs when setting the fare.
Considering the given equation Q = 1,000 - 10P, we can assume that the maximum number of trips (Q) occurs when the fare (P) is zero. Plugging in P = 0 into the equation, we get Q = 1,000 - 10(0) = 1,000 trips (000s).
Since the airline needs to cover the average cost of $50 per passenger, it is likely that the fare will be higher than $50. However, we cannot determine the specific fare without additional information about the supply curve and the airline's pricing strategy.
In conclusion, based on the given information, we can observe that the restricted entry of new airlines and higher operational costs in the CARICOM region could lead to higher airfares compared to US airfares for routes of comparable distances.