+1 862 207 3288 This assignment will give you practice in applying some of the economic concepts learned in class. You should use the concepts and the definitions introduced in class in order to answer the questions. No additional material or background reading is needed to complete the answers.
Background needed to complete the assignment: you will need to revise the topics of weeks 2, 4 and 5: elasticity, competition, market power and non-collusive oligopoly (chapters 3, 7, 8 and 9 of the textbook). Questions 1 and 2 refer to the case at page 231 of the textbook but the study of the case is not strictly necessary. All the necessary material is in the textbook and in the lecture notes. You do not need any additional background reading or further research (they will not raise your mark).
Structure of the assignment: The assignment is composed of four questions, each worth a maximum of 5 marks. The maximum length of each answer is stricly100 words. Longer answers will receive a zero mark.
You must use the word template here provided. Do not change the margins and use font Times New Roman 12. You should complete the written answers in word if possible; the graphs can be drawn by hand.
Questions ( this is the template, just answer following this)
1. In March 2002 American Airlines implicitly increased the price for low-priced business tickets. Competitors did not follow the increase. Which non-collusive oligopoly model can better describe what happened? Represent it graphically and add a brief comment.
2. When other companies refused to follow the increase, American Airlines made an attempt to gain customers in the competitors’ markets by applying aggressive discounts on the tariffs. Assuming that American Airlines was ready to temporarily bear negative profits in these markets in order to enter them, represent graphically this attempt by using the appropriate non-collusive oligopoly model and briefly comment the graph.
3. The airline market was deeply impacted by the recession of 2008 and by the following slow recovery. Describe graphically what happened in the market due to the recession and to the slow recovery and briefly describe the graph. What can we infer about the characteristics of the demand for flights given that this market was so significantly affected by variations in customers’ income?
4. The demand for international flights in the US is, on average, less elastic to price than the demand for domestic flights. The demand for flights decreased during the recession of 2000. During this period the airlines operating internationally recorded a drop in the number of passengers while airlines operating domestically saw an increase. What assumptions can you make about how the airlines’ adjusted their prices during the recession and why did the changes lead to these different outcomes i
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