Profit maximizing in market for air travel

Assignment Help Microeconomics

Reference no: EM1370510

Formerly, market for air travel in Europe was highly regulated. Entry of new airlines was severely restricted, and air fares were set by regulation. Partly as a result, European air fares were higher than U.S. fares for routes of comparable distance. Suppose that, for a given European air route (say, London to Rome), annual air travel demand is estimated to be

Q = 1,500 - 3P (or equivalently, P = 500 - Q/3)

where Q is the number of trips in thousands and P is the one-way fare in dollars. (For example, 600 thousands annual trips are taken when the fare is $300.) In addition, the long-run average (one-way) cost per passenger along this route is estimated to be $200 (Note that in this case, average cost is the same as marginal cost).

a. Some economists have suggested that during the 1980s and 1990s there was an implicit cartel among European air carriers whereby the airlines charged monopoly fares under the shield of regulation. Given the preceding facts, find the profit-maximizing fare and the annual number of passenger trips.

b. In the last 10 years, deregulation has been the norm in the European market, and this has spurred new entry and competition from discount air carriers such as Ryan Air and EasyJet. Find the price and quantity for the European air route if perfect competition becomes the norm.

c. Given your results in parts (a) and (b), explain why society dislikes monopoly.

Reference no: EM1370510

Questions Cloud

Determine the total effect on aggregate demand : A government is recently operating with an annual budget deficit of $40 billion. The government has determined that;

Distinguishing between business and leisure events : Identify types of leisure events and explain differences and similarities between business and leisure events.

Prepare the initial linked list of students and grades : Write a C program which initially presents menu of choices for the user. Menu must consist of the following choices: Prepare the initial linked list of students and grades.

Examine the concepts of managing operations : Prepare a cohesive plan for correcting the problems which have been explicitly and implicitly identified. Your report should have a detailed analysis of each problem area and a discussion of the issues with recommended solutions.

Profit maximizing in market for air travel : Formerly, market for air travel in Europe was highly regulated. Entry of new airlines was severely restricted, and air fares were set by regulation.

Conduct an analysis petmeds outputs : Find PetMeds' key outputs and justify why they are the most important to your analysis. Remember that outputs are frequently quantified as turnover rates or sales volume, for example.

Approaches to new product design : What circumstances might a market-pull approach or a technology-push approach to a new-product design be the best approach?

Describe and implement fft algorithm cooley-tukey : Describe and implement in C++ FFT algorithm "Cooley-Tukey". Also, implement naive DFT and compare naive DFT with FFT using: a sample of the signal x(t) = t

Determining costs and maximizing profits for monopoly : A monopolist has demand and cost curves given by: Find out the quantity that maximizes profit? What is the revenue and profit at that point?

User Account

All Pages