LalaFast 21 is a major carrier based in the Philippines and has made a strategy of cutting fares drastically on certain routes with large effects on traffic in those markets. For example, on the Baguio-Cubao route the entry of LalaFast into the market caused average fares to fall by 48 per cent and increased market revenue from P21,327,008 to P47,064,782 annually. On the Tuguegarao-Caloocan route, however, the average fare cut in the market when LalaFaST entered was 70 per cent and market revenue fell from an annual P66,201,553 to P33,101,514. Questions 1. Calculate the PEDs for the Baguio-Cubao route and Tuguegarao-Caloocan route. 2. Explain why the above market elasticities might not apply specifically to Lalafast 21. 3. If LalaFast 21 does experience a highly elastic demand on the Baguio-Cubao route, what is the profit implication of this? 4. Explain why the fare reduction on the Tuguegarao-Caloocan route a profitable strategy for LalaFast may still be.
LalaFast 21 is a major carrier based in the Philippines and has made a strategy of cutting fares
drastically on certain routes with large effects on traffic in those markets. For example, on the
Baguio-Cubao route the entry of LalaFast into the market caused average fares to fall by 48 per
cent and increased market revenue from P21,327,008 to P47,064,782 annually. On the
Tuguegarao-Caloocan route, however, the average fare cut in the market when LalaFaST entered
was 70 per cent and market revenue fell from an annual P66,201,553 to P33,101,514.
Questions
1. Calculate the
2. Explain why the above market elasticities might not apply specifically to Lalafast 21.
3. If LalaFast 21 does experience a highly elastic
what is the profit implication of this?
4. Explain why the fare reduction on the Tuguegarao-Caloocan route a profitable strategy
for LalaFast may still be.
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