Tim is working on a school report on the proposed merger between American Airlines and U.S. Airways
He finds that U.S. Airways' annual revenue for 2012 rose by 3.7 percent over the previous year, while the revenue for American Airlines recorded an increase of almost 6 percent. Based on this, he concludes that, in 2012, passenger traffic must have increased more for American Airlines than for U.S. Airways. Is Tim's conclusion correct? Explain your answer.
Tim's conclusion is incorrect. While American Airlines' revenues might have increased more than U.S. Airways' annual revenue, this is not sufficient to conclude that the increase in sales was higher for American Airlines. Even if the percentage rate of growth was higher, the amount by which sales increased could have been lower. For example, a 6 percent increase over $100 (which is equal to $6.00) is still smaller than a 3.7 percent increase over $200 (which is equal to $7.40).
Tim is also possibly confused about the difference between the change in revenue and the change in quantity (in this case, number of passengers). If the two airlines face different elasticities then the same percentage change in quantity will lead to different changes in revenue for the two airlines.
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Suppose that 50 percent of the part-time workers of Metropolis are looking for full-time jobs
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