Questions and Answers of Principles Of Economics

What is normal profit?
What are the four basic market structures?
Consider a monopolist with TC = 1,500 + 2Qa. If demand is given by Q = 80 – P, what is the monopoly price and quantity?b. What are the profits?
State the four basic conditions that characterize a competitive market.
Does perfect competition exist in the real world?
Are perfectly competitive firms “price makers” or “price takers”? How is the profit-maximizing price and quantity decided upon by the perfectly competitive firm?
What happens when markets do not have enough competition?
What are the barriers to entry in the airline industry?
Is the aircraft industry an example of perfect competition?
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?
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
Explain how the price set by a perfectly competitive firm compares with the price under monopoly competition.
Assume a firm is operating under perfect competition with the following total cost and demand curves:TC =100 + 0.50 × Q2 P = 50a. Find equilibrium price and quantity.b. Is the firm making a profit
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.
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
Explain what will happen in the long run in a competitive market when some of the firms are not covering their average total costs.
Is it true that a monopoly firm will always make a profit? Explain why or why not.
What are the best examples of monopolistic competition in the real world?
How is price established in a pure competition?
How is price established in an oligopoly market?
The antitrust 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 a monopolistic competitive market?
If monopolies are socially undesirable, why do governments actually support having some?
Provide examples illustrating how markets change from one structure to another when technology or other market conditions change.
What are the implications for the regulatory authorities of the existence of contestable markets?
You are the manager for DirectJet and unable to determine whether any given passenger is a business or leisure traveler. Can you think of a self-correction mechanism that would permit you to identify
Graphically depict a shut-down case for a monopolistic competitive firm.When should any firm shut down in the short run?
Focus on the airline industry: why is the upper portion of the kinked demand curve elastic and the lower portion inelastic?
What are four distinguishing characteristics of monopolistic competition?
South Charleroi Airport is a regional airport serving the leisure travel market. The inverse demand curve for this airport is P = 150 – Q. Assume that there are only two airlines serving this
Suppose that a typical monopolistically competitive firm faces the following demand and total cost equations for its product:Q = 50 – P TC = 375 – 25Q + 1.5Q2 where P is the price of the product
Calculate the change in the HHI for the period of 2006–2017:a. For the US airline industryb. For US major airportsc. Have these industries become more or less concentrated over time?
Some students may think that university sweatshirts have a relatively high price when sold at the bookstore. Other than quality, can you think of a reason for the higher price of the sweatshirts in
There are a number of gas stations that are located near the lots of rental car companies around Orlando International Airport. These gas stations invariably charge a higher price than other gas
Suppose there are only two airlines that serve a certain route. Now suppose that one of the airlines institutes a sale on this route. What will be the effect on the other airline and what actions
Will the other airline immediately adopt a monopoly pricing strategy? Why or why not?
Occasionally, an airline will ask passengers what the purpose of the trip is.Usually, the stated reason is to provide better service for the customer. In addition to this reason, what other
Suppose that two airlines, DirectJet and MyJet, with identical cost functions are serving a regional airport with following information: Market demand: P = 1000 – 10Q Cost functions: AC = MC= $50a.
Explain the differences between qualitative forecasting and quantitative forecasting, and provide an advantage and disadvantage of each.
Imagine that you are an airline attempting to forecast the demand for seats over the next two to three years. What do you think could be used as leading indicators?
What is multicollinearity in a regression model?
What is autocorrelation in a regression model?
What is the difference between seasonal and cyclical variations? Give an example of how airlines respond to seasonal variations.
Describe the four different components of a time-series statistics.
If a regression analysis had an R2 of 0.89, what does this mean?
In a regression analysis, how would you incorporate seasonal variations and other important events (shock) like September 11?
Formulate a multiple regression model showing how the quantity demanded of an airline depends on the ticket price, the income of passengers, and the ticket price of other airlines operating in the
In a simple regression model, is it possible that all the actual Y values would lie above or below the true regression line? Explain.
List ten questions you would ask a group of passengers in order to estimate their demand function for a specific airline and a specific route.
Discuss the different methods of obtaining a trend projection from past observations to estimate the future demand.
EZjET, a small regional airline, wishes to predict sales for its business travelers between two cities for 2017. It has recorded data for its past 14 years’ demand and has obtained information on
Write the demand equation, in general form, for an airline and identify the following terms:a. Dependent variableb. Independent variablesc. Y-interceptd. Slopee. Logically, one can often expect a
DirectJet is a small regional airline based in northern Europe. It operates a small number of jet aircraft and could initially produce only 400,000 ASMs per day. However, the output rate picked up as
Quantico Australian Airlines faces the following annual demand function for its Los Angeles–Sydney route: Q(p) = 38,658 – 8.67P, where Q is the number of tickets sold and P is the average ticket
Why would one want to use the standard deviation instead of the variance to describe a distribution?
Explain in an intuitive way why the F-statistic and the R-squared statistics provide essentially the same information.
What is the difference between the T-statistic and the F-statistic?
Use the following regression analysis to answer the questions below. The dependent variable is the number of tickets sold per week, and the independent variables are the price of the flight (X1)
A small regional airline wishes to predict sales for its business class between two cities for the year 2019. The airline has recorded the following data for its past ten years: ticket sold and the
Explain how a dummy variable can improve the accuracy of a forecast model.
Define peak-load pricing and provide at least two examples.
Explain markup pricing and why it may not be a good tool to apply in the airline industry.
If a Fixed Based Operator (FBO) charges $5 per gallon for jet fuel with a marginal cost of $4, what is the markup on cost? When Ep = −2, the optimal markup on cost is:
What is meant by the terms “reservation price” and “consumer surplus” and how are these concepts related to price discrimination?
A major hotel offers 20% discounts for renting a room for more than three days.Therefore, in this case, the price paid by a traveler will be much lower than that of another traveler who stays less
How do airlines use price discrimination to maximize revenue based on elasticity of demand?
Calculate the optimal markup on cost for each service, based on the following estimates of point price elasticity of demand: Passenger Type First Class Cost Elasticity $400 -1.25 -1.1 -3.5 -2.5
Why is price discrimination more widely used in service industries than in product industries?
What is the main issue with average cost pricing?
What is the basic idea behind EMSR models?
How are seats allocated using the EMSR model?
What are the merits of using peak-load pricing at commercial airports?
The demand function for a given company is given as:P = 100 – Q2 where P is the price per unit and Q is the quantity demanded. Find the consumer surplus if the company charges P = $75.
Can every firm with monopoly power discriminate?
List three revenue management fences that airlines typically use to practice price discrimination and briefly explain how each one works.
Discuss the advantages and disadvantages of price discrimination for airlines and passengers.
Suppose that DirectJet Airlines has divided their passengers into economy class and business class. The price elasticity of demand for the business class is −1.5, and for the economy class is −3.
List the conditions that are needed for successful price discrimination.
Explain how the Expected Marginal Seat Revenue model is constructed and what assumptions are used to build the model.
Airlines generally charge lower fares to travelers willing to purchase tickets well ahead of time. Explain what assumptions the airlines are making when they engage in this type of pricing.
From time to time, when purchasing certain items such as jewelry, the salesperson will ask the customer what price the customer has in mind. What do you suppose is the purpose of this question?
Assume that the probability of selling a seat in first class is 50% and the fare for that class is $500. The probability of selling tickets in the next class is 90%, and the fare is $300. The
Define spillage and spoilage as they are used in the airline industry and what steps might an airline take to avoid either of these problems.
DirectJet has a daily flight between two regional airports. Historical data shows on the average 12% of ticketed passengers fail to show up for their flight. Assume that DirectJet consistently sells
MyJet Airlines provides daily services between London and Rome with a 300 seater A320 aircraft. Assume that the airline charges an average of $450 per seat and the number of passengers who reserve a
You are a manager at a low-cost airline that is planning to serve Charleroi Airport. Your airline has the option of serving Brussels Airport International Airport, the main airport serving Belgium,
What are some of the strategic policies of Southwest Airlines and Ryanair that have allowed them to be so successful?
What’s the biggest difference between low-cost airlines and legacy airlines?
From a passenger points of view:a. What are the advantages of low-cost airlines?b. What are the disadvantages of low-cost airlines?
Explain how having a single type of aircraft in a fleet affects an airline’s ability to recover from irregular operations, such as diversion recovery or an extended airport shutdown due to bad
Describe some of the differences of basic no-frills service between LCC carriers in the United States and those in Europe.
What are the challenges and problems faced by LCCs to expand into international markets?
How can legacy airlines compete effectively and efficiently with low-cost competitors?
In the last 30 years, there has been a surge in the low-cost market. Do you see any possibility for creation of airline alliances among LCCs? Explain you answer.
Many legacy airlines have attempted to create a low-cost airline that is separate from the legacy carriers. Without exception, almost all of these attempts have failed. Can you explain why legacy
Explain the relationship between the bankruptcy proceedings that many legacy airlines have entered into with respect to competition from the low-cost carriers.
What are some of the major reasons why a low-cost airline might be reluctant to locate at a major hub?
List some of the major technological advancements that have enabled low-cost airlines to succeed in the highly competitive domestic airline market.
Which model tends to have lower fuel costs—LCC or Legacy? Why?
What are some of the incentives for airlines to continuously improve safety?

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