Market Models

The main objective of a private firm is to maximize acquire and without the control over costs, they try to sell at higher prices. This is veritable if the run industry has an inelastic lease schedule as a price rise brings in higher revenue. The Marginal revenue sentiment states that in order to increase revenues, firms need to lower prices if they atomic number 18 operating in a price-elastic industry but a recall in price in a relatively in-elastic demand adds a shortfall to the revenue that so firms increase their prices in order to attain a higher profit.2) The US airline industry operates in the oligopolistic structure. That is the big quaternary firms namely American, Southwest, United and Delta have a combined deliberate of more(prenominal) than 40% of the food market which supports the fact that these firms can be classified as oligopolies. Further the firms do not react to price increases that sharply as it is a characteristic of an oligopoly to react more towar ds a price fall rather than an increase except for the case of a market leader.3) No, the emergence will not differ whether we consider the entire domestic market or just the market for San Francisco and Seattle. The firms operating argon same and customers argon quite rational that is the service being offered is homogenous so it would not matter if we look at it as a whole or individually. Here a price rise in the case of a single market would mean that the competitor may gain an prefer and attain higher revenue.4) There are many advantages of collusion or price fixing related to competitors. One of them being an equal share for all, this means that they can share areas among themselves and reduce competition. This helps reduce uncertainty as the market saturation is done and firms are bound by arranging to receive equal share. This would further give rise to profits and intimately of all this behavior is a very strong entry obstruction as firms can unite in order to drive o ut-of-door an entrant. Collusive pricing also means a restricted add up therefore firms can ask higher prices as there is a quota in place thence creating an in-elastic demand.5) No, an oligopoly operates in between both extremes of its demand schedule that is the elastic region and the in-elastic region. The reason that the firm rescinds from increasing prices is collectable to the fear of losing its market share as the products in this industry are homogenous and so the customers would shift easily to other airlines. The oligopolists must consider how their rivals will react to any change in the price, output, characteristics, or advertising. Oligopoly is thus characterized by strategic deportment and mutual interdependence. By strategic behaviour we simply mean self interested behaviour that takes into account the answer of others. So we can not associate that such advertisements or statements are for a fixture in price.Bibliography1)Parkin, Michael. (2004) Economics. Addiso n Wesley Publishing Company