Statement–Assumption — “X Airlines has increased passenger fares by 15% with immediate effect.” Assumptions: I) Demand for X Airlines seats may remain largely unchanged despite the hike. II) Other airlines may also increase passenger fares. Choose the implicit assumption(s).
Correct Answer: If only Assumption I is implicit
Introduction / Context:Firms raise prices when they expect revenue to increase or margins to improve. That expectation often rests on demand being relatively inelastic (at least in the short run).
Given Data / Assumptions:
- Action: immediate 15% fare hike.
- Market context: not specified for rivals.
Concept / Approach:Assumption I—that demand will not drop enough to negate the price increase—is necessary to justify the hike. Assumption II about rivals is speculative and not required; X could raise fares regardless of competitors, based on its own load factors/positioning.
Step-by-Step Solution:
1) Link pricing action to demand elasticity (I).2) Discard II as extraneous to the decision’s minimal rationale.Verification / Alternative check:Airlines often adjust fares route-wise based on yield management absent industry-wide moves.
Why Other Options Are Wrong:“Only II/either” add unnecessary industry assumptions; “neither” ignores pricing logic.
Common Pitfalls:Assuming price leadership must be coordinated; it need not be.
Final Answer:Only Assumption I is implicit.