Question

Suppose that you are the CEO of a discount airline that caters to students on tight budgets who want to travel to warm locations when the weather gets cold. Currently, your airline flies small regional jets from the MBS International Airport to 6 cities in Florida. Assume that your airline has a monopoly on the local market.

1. List the conditions that apply to monopolies, and briefly describe how they apply to this airline. (6 points)
   
2. Using the table below, determine the profit maximizing number of passengers that you should serve out of the MBS market. The price is for a round-trip ticket. (8 points)

P	Q	TR	MC
500	100	50,000	60,000
450	200	90,000	70,000
400	300	120,000	80,000
350	400	140,000	90,000
300	500	150,000	100,000
250	600	150,000	110,000
200	700	140,000	120,000
150	800	120,000	130,000
100	900	90,000	140,000
50	1,000	50,000	150,000

3. Suppose that your fixed costs are $50,000, and your variable costs are $100 per passenger. Would you ever consider shutting down the airline? At what point would you do this and why? (8 points)

3. Suppose that your airline was competing with 3 other airlines for the passengers wanting to fly to Florida. How would you determine what fare to charge? Would you collude with your competitors? Why or why not? (8 points)

Answer 1