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business
principles of economics

Questions and Answers of Principles Of Economics

Identify some of the characteristics of the US airline industry before deregulation.a. How did this era affect airlines and passengers?b. Was deregulation successful?c. What are direct and indirect
Which regions serve the largest number of passengers, movements, and cargo?
Is regional aviation activity reflected in the average age of aircraft by region?
What are some trends with respect to consolidation in the industry? How does this consolidation manifest at airports? How is this demonstrated through the HHI?
Mergers have been an important part of the airline industry. Have they been successful? Why have so many been unsuccessful?
Which regions are forecasted to have the highest growth in aviation over the next 20 years?
How were airline ticket prices set during the period of regulation? From an economic point of view, what would be the predicted outcome of setting prices in this way?
Explain how the airline industry is affected or unaffected by the rate of economic growth.
What is the difference between indirect and induced economic effects?
Explain how you might set up an economic impact study for a proposed airport construction project.
Explain why low-cost carriers have cost advantages over legacy carriers.
Why are international airlines so much less competitive than domestic airlines?
List some of the inherent advantages of air travel compared to other modes of transportation.
List some of the economic factors that make the airline industry different from other industries and some that make it the same as far as economic analysis is concerned.
Discuss the prospects for the airline industry in the next few years.
Explain what is meant by induced economic effects and give an example.
What is opportunity cost and why do airline managers need to understand it?
How do individuals and firms generally make decisions concerning economic situations?
Give a standard definition of the science of economics.
What are the main differences between microeconomics and macroeconomics?
How does the chapter classify government control of the economy?
List two types of perceived market failures.
What are some of the main problems associated with total government regulation of the aviation industry?
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?
How is the concept of economic efficiency different from the concept of technical efficiency?
Many airlines overbook flights. Is this efficient from an airline’s point of view?
What role do prices play in a market economy?
Explain why the economic concept of self-interest is not the same thing as selfishness or greed.
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?
Do you think that the problem of scarcity will ever be solved? Why or why not?
How is unemployment defined in the United States?
Why is some amount of unemployment essential to the functioning of a market economy?
What is cyclical unemployment?
Define inflation. Is it possible for all prices to increase at the same rate?
Suppose a credit company would like to lend money at a 3% rate of interest, but there is an inflation rate of 10%. What rate would they charge and why?
Define the economic concept of externality. How might an externality be addressed in the marketplace?
When you are deciding how much money to spend on air travel, what factors affect your decision? Does your decision depend on how much money you have? Does your action depend on whether you are on a
Suppose there are only three goods that households consume: clothes, food, and weapon. Given the information below, find the CPI in the base year and the current year using a 100-point scale. Year
Find the unemployment rate for the following employees with each level of education. High School Bachelor's Degree Post Graduate Total Population 35,450,000 45,233,000 41,150,000 In Labor Force
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; employed 9
What is price elasticity of demand? Provide examples of products with elastic demand and products with inelastic demand. Explain your reasoning.
Explain the difference between shortage and surplus.
Define the law of demand and supply. Explain the difference between demand and quantity demanded.
Is price elasticity of demand for the airline industry in short-haul markets more or less than it is in long-haul markets? Why?
What are the factors that influence elasticity of demand for pilots?
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 some of the determinants of demand for narrow-body commercial aircraft such as Boeing B-737 and Airbus A-320?
With changes in fuel prices, what kind of effects can be witnessed in the market for air travel?
Explain direct demand and derived demand. Which of these two types of demand is the airline industry most characterized by?
Suppose JetBlue raises the ticket price by 6% and the ASM decreases by 3%. Is the price elasticity of supply elastic, unit elastic, or inelastic? Why?
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
Given the following supply and demand functions, calculate consumer surplus.P =600− Qd P =300+2QS
Assume your demand and cost functions are the following:Q =100–0.50P and TC(Q) =104–14Q + Q2a. Find the inverse demand function for your firm’s product.b. What price should you charge if you
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 + 200PC
When the price of airline tickets falls, the supply falls and the demand increases.Using the economic ideas covered in this chapter, critically evaluate this statement.
Allegiant Airlines does an excellent job of allocating seats on their point-to-point flights around the United States. What economic concepts do you suppose that they are using as the price of the
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?
Suppose the government mandates 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
Why might an airline that has international routes pay the workers in one country more than the workers in another country for essentially the same job?
What is the effect of a price ceiling on the quantity demanded?
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 – 3 QD P = 5 + 7 QS.a. What is the market
Consider the following demand curve:and the following supply curve:a. What is the equation of demand curve?b. What is the equation of the supply curve?c. Solve for equilibrium price and quantity Q
Suppose an airline operates a fleet of 50 aircraft with varying seat configurations, ranging from 100 to 300 seats per aircraft. The airline operates an average of ten flights per day, with flight
Identify the reasons why airlines would want to take over other airlines.
What is impairment of asset with example?
What is the difference between economies of scale and economies of density?
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
What is a sunk cost? Provide an example of a sunk cost in an airline. Should such costs be irrelevant in making future decisions?
Define and compare historical, replacement, and sunk costs.
Calculate BLF for the following airlines: 1 2 3 4 5 6 7 8 9 US Airlines, 2010 Airlines American Continental Delta United Airlines US Airways Southwest Airlines JetBlue Air Tran Frontier Yield CASM
Why is it important that an airline manager consider opportunity costs when making economic decisions regarding the airline?
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
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
Jet Services is a manufacturer of parts for the commercial aircraft. The company is established in Taiwan, and it’s headquartered in Taipei City. Suppose that the cost function for a product is
An aircraft manufacturer’s estimates indicate that the variable cost of manufacturing a new aircraft will be $150 million. The fixed cost applicable to the new product is estimated to be $24
Suppose that the cost of producing anti-icing liquid is given as (Q in hundred gallons):TC = 4,000 + 35×Q – 0.01×Q2a. What is the cost of producing Q = 40?b. What is the marginal cost when Q = 40?
Why might an airline choose direct flights rather than hub and spoke?
What is a real-life example of a monopsony?
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?

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