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Introduction To Air Transport Economics From Theory To Applications 3rd Edition Bijan Vasigh, Ken Fleming, Thomas Tacker - Solutions
What are the implications for the regulatory authorities of the existence of contestable markets?
Provide examples illustrating how markets change from one structure to another when technology or other market conditions change.
If monopolies are socially undesirable, why do governments actually support having some?
How is price established in a monopolistic competitive market?
The anti-trust laws do not allow firms in the same industry to agree on what prices they will charge. Is that correct for the airline industry?
How is price established in an oligopoly market?
What are the best examples of monopolistic competition in the real world?
Is it true that a monopoly firm will always make a profit? Explain why or why not.
Explain what will happen in the long run in a competitive market when some of the firms are not covering their average total costs.
Suppose you are the manager of NavGas, a major FBO, exclusively serving general aviation aircraft. Based on the estimates provided by a consultant, you know that the relevant demand and cost functions for your product are:Q = 25 − 0.5P TC = 50 + 2Q a What is the FBO’s inverse demand function?b
General Engine (GE) is the only producer of new jet engines for general aviation aircraft.Demand for a single engine is P = 2,000,000 − Q while the MCs of producing an engine are MC = 1,999Q.a What would be the monopoly price and quantity of these engines?b What economic profit would GE earn on
Assume a firm is operating under perfect competition with the following total cost and demand curves:TC = 100 + 0.50 × Q2 P = 50 a Find equilibrium price and quantity.b Is the firm making a profit or loss?c Is this a long-run or short-run equilibrium?
Explain how the price set by a perfectly competitive firm compares with the price under monopoly competition.
You are the manager of a firm that sells its product in a competitive market at a price of$50. Your firm’s cost function is TC = 40 + 5Q2.a Calculate the profit-maximizing output.b Calculate the total profit.
Is it true that a monopoly can charge any price and that customers will still have to buy the product? Do you agree or disagree. Why?
Is the aircraft industry an example of perfect competition?
What are the barriers to entry in the airline industry?
What happens when markets do not have enough competition?
Are perfectly competitive firms “price makers” or “price takers”? How is the profitmaximizing price and quantity decided upon by the perfectly competitive firm?
Does perfect competition exist in the real world?
State the four basic conditions that characterize a competitive market.
Consider a monopolist with TC = 1500 + 2Q.a If demand is given by Q = 80 − P, what is the monopoly price and quantity?b What are the profits?
What are the four basic market structures?
What is normal profit?
What is a real-life example of a monopsony?
Briefly summarize the future for global alliances as outlined in the chapter.
What is the difference between the way the EU and the DOT evaluate the grant of antitrust immunity?
How does this affect traffic (domestic vs international) at the airport?
Which airport has the greatest concentration of a single global alliance network?
What are the major trends in global alliances?
What are some of the pros and cons of equity investments between airlines?
What are code share agreements between airlines?
Explain why airlines originally formed alliances with foreign carriers.
What is a joint venture between airlines?
Why do legacy airlines have an advantage over LCCs in the international market?
Why is aviation particularly well suited to open skies agreements, and what are the potential gains for individual airlines?
Name the three major world alliances. What are some of the benefits and costs associated with these alliances?
Which freedom is not likely to be extended to foreign airlines and why?
What are the main provisions of open skies agreements and why have some countries avoided such agreements?
How were LCCs in Europe affected by the EU open skies agreement?
How did the open skies agreement between the EU and the US reduce the barriers to entry?
Define Cabotage Law and explain the impact of cabotage agreements on international travel.
Identify and describe some of the costs associated with joining a global alliance.
Global airline alliances were created with the intention of growing the networks of airlines and providing greater access to more parts of the world. Recently, three major global alliances started to accept smaller, regional airlines. How do such members benefit an alliance?
List and briefly explain the eight provisions of open skies agreements.
What is the difference between a free-floating currency and a pegged exchange rate?
What is the difference between a production possibilities curve that has a convex shape versus a production possibilities curve that is a straight line?
Now suppose, that instead of the tariff, an import quota is imposed on the product.Assume that the original supply and demand curves with free trade are P = 1000 − 5Q for demand and 400 + 5Q for supply.a Find the price and quantity with the new free trade supply curve.b Calculate the new price
What do you conclude about the gains from trade when you compare the sum of producer surplus and government gain to the loss of consumer surplus?
Using the numbers given in the preceding problem, how much does the domestic government gain from the tariff? How much do the domestic suppliers gain because of the tariff? How much do domestic consumers lose because of the tariff?
Assume that the domestic demand for a certain product is equal to P = 1000 − 5Q.Assume further that the domestic supply for the same product is equal to P = 500 + 5Q.With free trade, the supply curve is horizontal at a price equal to $700.a Find the equilibrium quantity with free trade.b Now,
Explain why it is often said that trade is always good, but not always good for everybody.
Generally speaking, what happens to the value of a country’s currency when imports exceed exports and how, in terms of supply and demand, does this take place?
How have the effects of free trade impacted the aviation industry?
Name and describe the rationale behind the three types of barriers to trade that a country may impose.
Why do nations trade? Briefly explain the arguments for and against free trade.
Now assume that Country A takes 100 hours to produce 20 aircraft or ten jet engines and Country B takes 100 hours to produce 15 aircraft or five jet engines. Which country has an absolute advantage in which product? Does either country have a comparative advantage in one of the products? If so,
Consider the following situation: Country A takes 50 hours to produce ten aircraft or five jet engines. Country B takes 50 hours to produce five aircraft or ten jet engines. Which country has an absolute advantage in which product? What are the domestic terms of trade for each country? Draw the
Explain why it is particularly important to understand the international aspects of the aviation industry.
Why is it so difficult to expand airports in the modern age?
Discuss the various forms of privatization that are available for airport operation. Has one been more successful than the others?
Would congestion pricing completely do away with delay at busy airports?
List some reasons why the airlines might desire commercial air traffic control.
What tends to happen over time to the regulating agency in a regulated industry?
Why might airlines that already had intercontinental route and slot positions oppose a more open navigation regime provided by satellite control?
Why might the air traffic control union oppose fully automated air traffic control?
Suppose an airport has an inverse demand curve for landing aircraft where the demand:P = 500 − 2 × Q. Assume that the airport is a monopoly and has negligible costs associated with landing aircraft.a Calculate the price that could be charged with this demand for the airport to maximize revenue.b
In what sense can it be said that the government controls the means of production for the airline industry?
Suppose the cost of producing anti-icing liquid is given as Q in hundreds of gallons:TC = 4,000 + 35 × Q − 0.01 × Q2 a What is the cost of producing Q = 40?b What is the marginal cost when Q = 40?
An aircraft manufacturer’s estimates indicate the variable cost of manufacturing a new aircraft will be $150 million per aircraft. The fixed cost applicable to the new product is estimated to be $24 billion, and the selling price of the aircraft is $190 million per aircraft.a Computation of the
Jet Services is a manufacture of parts for the commercial aircraft. The company is established in Taiwan and its headquarters is in Taipei City. Suppose that the cost function for a product is given by:TC (Q) = 4,000 − 9Q2 + 0.002Q3 Find the production level that will lead to the minimum average
At a certain manufacturer, the MC is:MC = 3(Q − 4)2 dollars per unit when the level of production is Q units.a Express the total production cost in terms of the FCs and VCs.b What is the TC of producing 14 units if the FC is $400?
Suppose the total cost function is given by:C = 50 + 4Q + 2Q2 a What is the AFC of producing five units of output?b What is the AVC of producing five units of output?c What is the ATC of producing five units of output?d What is the MC of producing five units of output?e What is the AFC function?f
Calculate BLF for the following airlines:US Airlines, 2010 Airlines Yield CASM BLF 1 American 14.09 12.84 ?2 Continental 14.96 11.48 ?3 Delta 13.07 11.84 ?4 United Airlines 15.15 12.03 ?5 US Airways 11.68 11.73 ?6 Southwest Airlines 10.66 11.27 ?7 JetBlue 11.75 9.77 ?8 AirTran 9.71 10.35 ?9
Why it is important that an airline manager consider opportunity costs when making economic decisions regarding the airline?
For many airlines in the short run, a major portion of the cost of production, such as aircraft and terminal space is fixed. Should these very large FCs be ignored when the revenue managers are making output and pricing decisions? Why?
Consider the following demand curve:Q 0.00 12.50 25.00 37.50 50.00 62.50 P $20.0 $17.5 $15.0 $12.5 $10.0 $7.5 and the following supply curve:Q 62.50 50.00 37.50 25.00 12.50 0.00 P 20 17.5 15 12.5 10 7.5 a What is the equation of the demand curve?b What is the equation of the supply curve?c Solve
Consider the market for jet fuel in a remote regional airport. The domestic demand and supply curves are given as (Qs are gallons in thousands):P = 55 − 3QD P = 5 + 7 QS a What is the market equilibrium price and quantity?b If the government imposes a price ceiling of $28, what will be the
If the policy of #18 were to be continued over a very long time, what would be the results of the policy?
Suppose the government decrees that airline ticket prices are too high and that they cannot exceed a certain amount. Using the concepts discussed in this chapter, what would be the short-term results of this policy?
The price of oil has been on a downward trend for about six months. How do you think this will affect airline ticket prices and how will this be brought about?
Allegiant Airlines does an excellent job of allocating seats on their point-to-point flights around the US. What economic concepts do you suppose that they are using as the price of the seats are increased as the departure time for the flight gets closer?
The JetGo Company is a major fixed-base operator (FBO) at a regional airport. Management estimates that the demand for the jet fuel is given by the equation:QJF = 10,000 − 2,000PJF + 0.2Y + 200 PC Where:QJF is demand for jet fuel in thousands of gallons per year PJF is the price of jet fuel in
Assume your demand and cost functions are the following:Q = 100 − 0.50P TC(Q) = 104 − 14Q + Q2 a Find the inverse demand function for your firm’s product.b What price you should charge if you are planning to sell 5 units?c Calculate your total cost of producing 5 units.
Suppose an airline increases its average ticket price from JFK to CDG from $435 to$515, and consequently, the number of seats sold drops from 800 to 735.a What is the price elasticity of demand for this market?b Is the demand elastic, unitary elastic, or inelastic in this price range?c What is the
Suppose JetBlue raises the ticket price by 6 percent and the ASM decreases by 3 percent.Is the price elasticity of supply elastic, unit elastic, or inelastic? Why?
With changes in fuel prices what kind of effects should we see in the market for air travel?
Suppose the income elasticity of demand for a good is −4. Is this a normal good or an inferior good? If it is a normal good, then is it a luxury or a necessity? Why?
What are the factors that influence the elasticity of demand for pilots?
Is the price elasticity of demand for the airline industry in short-haul markets more or less than it is in long-haul markets? Why?
What is the price elasticity of demand? Provide some examples of products with elastic demand and products with inelastic demand. Explain your reasoning.
Calculate the labor force participation and the unemployment rate in the following cases:a Population 20 million; labor force 11 million and 10 million employed.b Population 20 million; labor force 9 million and 1 million unemployed.c Population 8 million; labor force 3 million and 300,000
Suppose there are only three goods that households consume: clothes, food, and weapons.Given the following information, find the CPI in the base year and the current year using a 100-point scale. Year Weapons Food Clothes Price Quantity Price Quantity Price Quantity Base year $10,000 $10 2,000 $5
As an airport manager, provide examples of opportunity costs from your professional prospective.
Define the economic concept of an externality. How might an externality be addressed in the marketplace?
Suppose a credit company would like to lend money at a 3 percent rate of interest but there is an inflation rate of 10 percent. What rate would they charge and why?
How is unemployment defined in the US?
Suppose a freeway has one lane that is devoted only to people with important business(as defined by the people themselves). Do you think that lane would be any less crowded than the other lanes?
Suppose an individual inherits a $500,000 house and chooses to live in it. From an economic point of view, is this a free good?
What are the main differences between micro and macroeconomics?
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