Question
23. Suppose that the airline industry is an oligopolistic market with significant barriers to entry. If this is true, we would expect that (more than
23. Suppose that the airline industry is an oligopolistic market with significant barriers to entry. If this is true, we would expect that (more than one answer is correct):
a. each airline will set its own price and output without considering how other airlines might respond.
b. if the number of airlines declined (perhaps because of a merger between two airlines), then collusive behavior in the industry would be less likely.
c. the airfares being charged will most likely be greater than what would be charged in a competitive price-taker market with no entry barriers but less than what would be charged by a pure monopolist.
d. the firms in the industry will attempt to maximize profit.
24. When economies of scale are unimportant and a monopolistic firm is split into several competitive units:
a. output will increase but so will price since the marginal cost curve is upward sloping.
b. the monopolist's profits will be divided among the newly competitive, rival firms.
c. the competitive price will be less than the monopoly price.
d. competition among firms will cause price to fall to the level of production costs.
e. both c and d are correct.
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