Title: QUIZ: The Economics of Flying: How Competitive Are the Friendly Skies? -- Page One Economics®
Course: FRE Resources > Section: The Economics of Flying: How Competitive Are the Friendly Skies? -- Page One Economics®

Q: After the airline mergers, the four remaining airlines had an increased level of market power. For consumers, this meant that they had to pay
- higher prices, regardless of consumer demand.
- lower prices, regardless of consumer demand.
- the same price because airfares were not impacted by market power.
- higher prices, but only for business class travelers.
A: higher prices, regardless of consumer demand.

Q: After the airline mergers, the four remaining airlines had an increased level of market power. For the airlines, this meant that the remaining airlines had
- the power to limit competition.
- the power to choose the best routes.
- the power to perfectly price discriminate.
- the power to set airfares without losing all customers.
A: the power to set airfares without losing all customers.

Q: Why is it more difficult for firms to enter an oligopolistic industry than a highly competitive one?
- The low initial profits in the industry act as a deterrent for firms looking to enter the market.
- There are significant barriers to entry, including high startup costs.
- The market power of existing firms in the industry acts as a barrier to entry.
- New firms have difficulty differentiating their product in significant ways from the products of existing firms.
A: There are significant barriers to entry, including high startup costs.

Q: The fast food industry, where there are many firms with slightly differentiated menus, is best categorized as
- an oligopoly.
- a pure monopoly.
- perfect competition.
- monopolistic competition.
A: monopolistic competition.

Q: How do low-cost carriers impact other airlines?
- They increase competition, incentivizing other airlines to offer cheaper flights.
- They prevent other airlines from occupying popular routes.
- They create an incentive for other airlines to increase the quality of the flying experience.
- They incentivize other airlines to increase airfares to differentiate their product.
A: They increase competition, incentivizing other airlines to offer cheaper flights.

Q: Before deregulation, airlines relied on __________ strategies to attract customers, whereas airlines relied more on __________ after deregulation.
- non-price competition; price competition
- price competition; non-price competition
- antitrust laws; market power
- antitrust laws; non-price competition
A: non-price competition; price competition

Q: If the government were to grant a single airline sole access to a route from St. Louis to Washington, D.C., it would be reasonable to predict that
- airfares on the route would decrease.
- airfares on the route would increase.
A: airfares on the route would increase.

Q: Airlines demonstrate economies of scale because they often have __________ startup costs from the cost of buying airplanes and relatively __________ marginal costs from operating and maintaining aircrafts.
- high; high
- low; increasing
- high; low
- low; decreasing
A: high; low

Q: If the airline industry could function under perfect competition, then there would be __________ firms and flights would be __________.
- few; identical
- many; identical
- many; differentiated
- few; differentiated
A: many; identical

Q: The market structure most associated with the fast food industry is __________ because the firms in the industry produce products that are __________.
- monopoly; unique
- oligopoly; similar or identical
- monopolistic competition; similar but not identical
- perfect competition; identical
A: monopolistic competition; similar but not identical