1. In a perfectly competitive market, what is the effect of an increase in marginal cost on equilibrium price and quantity? Under what conditions does the increase in equilibrium price equal the increase in marginal cost?
2. If equilibrium price increases by less than an increase in marginal cost, what is the response by a competitive firm in setting its output?
3. "Delta said it has raised fares 4% from last year, offsetting two-thirds of the fuel-cost rise in the second quarter." What is the effect of an increase in marginal cost on a competitive firm's profit?
4. In response to increases in fuel prices, why are airlines raising prices and cutting flights?