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CH170310_2733_ECO - 1 Although the U S airline industry has...

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1. Although the U. S. airline industry has only a relatively small number of sellers, the market is nevertheless highly competitive. Explain. Competitiveness can be there even when there are relatively small number of sellers. This is especially true when there is no collusive oligopoly. The price wars lead to competitiveness. Moreover, the US airline industry is a very mature market unlike other asian countries. This makes the service provision of all the players comparable. This means that there is not much diversity in the service quality. Thus it acquires one of the basic conditions of a competitive industry i.e. product non-diversity. 2. The price of a taco was $0.29 in 1970 and $0.99 in 1993. The CPI was 38.8 in 1970 and 144.0 in 1993. What is the 1993 price of a taco in 1970 dollars? 144 = (P*/0.29) x 38.8 P* = 1.07 P = 0.99 The 1993 price of taco in 1970 dollars is (1.07 – 0.99)/0.29 = 0.27 3. The price to attend a NBA basketball game in Chicago is $55 while the CPI in Chicago is 153. The CPI in Charlotte is 108 while the price to attend a NBA basketball game is $52. Which city offers a smaller real cost of attending a NBA basketball game? 153 = (55/base year price) x 100 bsp = 35.9 CPI* char = (52/35.9) x 100 = 144.8 But CPI char = 108 So, charlotte offers a lower real cost of attending a NBA basketball game. 4. The reward for the capture of Jesse James was $500.00 in 1881. Suppose the CPI in 1881 was 0.25. What is the real value of the reward in 1990 dollars if the CPI was 130.7 in 1990? (130.7/0.25) = (P/500) P = $261400 Part 2 – Calculate these! Answer all 5 questions. Each question is worth 15 points (75 points total) 5. The inverse demand curve for product X is given by: PX = 25 - 0.005Q + 0.15PY where PX represents price in dollars per unit, Q represents rate of sales in pounds per week, and PY represents selling price of another product Y in dollars per unit. The inverse supply
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