ANSWER EACH QUESTION SEPARATELY

1. Identify the characteristics of a monopolistically competitive market and an oligopolistic market. Discuss how these characteristics change the perfectly competitive graphs. Does the process for deciding on the optimal price and quantity change?

2.

AutoSave O OFF AH ? CG ... Homework6 - Compatibility Mode - Saved to my Mac Q Home Insert Draw Design Layout References Mailings Review View 9 Tell me Share Comments Times New... 12 A A Aa Po AaBbCcDdE AaBbCcDdE AaBbCcD AaBbCcDdE AaBb Paste BIU abx v Lv A v Normal No Spacing Heading 1 Heading 2 Title Styles Dictate Sensitivity Editor Pane x Office Update To keep up-to-date with security updates, fixes, and improvements, choose Check for Updates. Check for Updates RARITAN VALLEY COMMUNITY COLLEGE BUSINESS AND PUBLIC SERVICE DEPARTMENT Homework #6 Ellen J. Lindemann Does the following diagram illustrate a monopolistically competitive firm in a long-run equilibrium? If yes, explain why. If no, explain why not and redraw the diagram so that it is a long-run equilibrium. Price MC ATC D MR Quantity Page 1 of 1 55 words [ English (United States) Focus E 132%Virgin Atlantic Blows the Whistle . . . BUSINESS CASE or Blows It? companies may be compelled to a cartel through which they coor blow the whistle to avoid investi- dinated increases in surcharges. gation. "It's a race," she said. "If British Airways first introduced a 65 ($8.25) surcharge on long-haul you don't get to them and confess flights when a barrel of oil traded first, you can't get Immunity. The at about $38. It increased the sur- only way to protect yourself is to charge six times, so that by 2006. go to the authorities, even if you BRITISH AIRWAYS when oil was trading at about $69 haven't [done anything]." The result a barrel, the surcharge was $70 was that the Virgin executives were ($115). At the same time, Virgin given immunity in both the United Atlantic also levied a $70 fee. These States and the United Kingdom, but the British Airways executives were The United Kingdom is home to surcharges increased within days of two long-haul airline carriers (car- each other. subject to prosecution (and pos- Eventually, three Virgin execu- sible multiyear jail terms) in both riers that fly between continents): British Airways and its rival, Virgin tives decided to blow the whistle in countries. Atlantic. Although British Airways exchange for immunity from prose- In late 2011 the case came to is the dominant company, with a cution. British Airways immediately a shocking end for Virgin Atlantic market share generally between suspended its executives under sus- and U.K. authorities. Citing e-mails 50% and 100% on routes between picion and paid fines of nearly $500 that Virgin was forced to turn over London and various American cit- million to U.S. and U.K. authori- by the court, the judge found insuf- ies, Virgin has been a tenacious ties. And in 2010 four British Air- ficient evidence that there was ever a competitor. ways executives were prosecuted by conspiracy between the two airlines. The rivalry between the two has British authorities for their alleged The court was incensed enough to ranged from relatively peaceable role in the conspiracy. threaten to rescind the immunity to openly hostile over the years. In The lawyers for the executives granted to the three Virgin executives. the 1990s, British Airways lost a argued that although the two air- court case alleging it had engaged lines had swapped information, n "dirty tricks" to drive Virgin out this was not proof of a criminal QUESTIONS FOR THOUGHT of business. In April 2010, how- conspiracy. In fact, they argued, 1. Explain why Virgin Atlantic and ver, British Airways may well have Virgin was so fearful of American British Airways might collude in wondered if the tables had been urned. regulators that it had admitted to response to increased oil prices. criminal behavior before confirm- Was the market conducive to It all began in mid-July 2004, collusion or not? then oil prices were rising. British ing that it had indeed committed an offense. 2. How would you determine whether osecutors alleged that the two illegal behavior actually occurred? lines had plotted to levy fuel sur- One of the defense lawyers, Clare What might explain these events larges on passengers. For the next Montgomery, argued that because U.S. laws against anti-competitive other than illegal behavior? to years, according to the pros- utors, the rivals had established behavior are much tougher than 3. Explain the dilemma facing the two those in the United Kingdom. airlines as well as their individual executives