Boeing estimates that the price elasticity of demand for new commercial jets is –1.25.

a. Write the equation for the price elasticity of the demand of new commercial jets. Does the value of elasticity of -1.25 imply that when lowering the price the revenues of Boeing will increase or decrease? In other words, does “the price effect dominate the quantity effect” or the other way around?

b. If the price of a commercial jet goes from $30 million (at which price the worldwide Boeing sales of commercial jets were 10,000) to $33 million, will sales increase of decrease? By how much in percentage terms? By how many units? Compare the revenues of Boeing at the old and at the new price.