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MBAA 523 Problem Set 8




Question;In;oligopoly, each firm is acutely aware of the production and marketing decisions;of all competitors and carefully considers the potential competitive reactions;in all decisions. Discuss whether firms;in other market structures consider the potential reaction of competitors when;making important marketing decisions. Part;of the debate among economists on US airline deregulation in the 1978 involved;the theory of contestable markets. List;the four characteristics of contestable markets and evaluate how well airline;markets meet these criteria.Price;outcomes of the 5 oligopoly models differ substantially. Which models produces the lowest and highest;total profits (all firms combined)? What;are the predicted prices? Provide aviation industry examples of routes;or markets that might approximate each of these two outcomes.Oligopoly;is the predominant market structure in the airline industry. In the express package business, FedEx, UPS;and DHL compete in the global air express industry. In the US, FedEx and UPS are a duopoly. FedEx and UPS financial indicators such as;net margin on sales and return on assets are near the average for US;companies. What oligopoly model does;this suggest and what characteristics of express package business would lead to;this outcome. The;mission statement for the Organization of Petroleum Exporting Countries states;?the mission of the Organization of the Petroleum Exporting Countries (OPEC) is;to coordinate and unify the petroleum policies of its Member Countries and;ensure the stabilization of oil markets in order to secure an efficient;economic and regular supply of petroleum to consumers, a steady income to;producers and a fair return on capital for those investing in the petroleum;industry.? Explain why the OPEC members;often disagree on how much petroleum each country should produce.


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