Swissair Business Fail

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1. What was the difference between the scuba diving markets in Ahmed and Pemuteran? Which market was more competitive? Which of the four market structures did the two markets most resemble: perfectly competitive, monopolistically competitive, oligopolistic or monopolistic?
The only difference between the two markets is the amount of producers in the market with there being more producers in the Ahmed market than the Permuteran market. The Ahmed market was more competitive due to the higher number of competitors. It’s more competitive state can be seen in the reduction of price for scuba diving tours. Due to the large amount of producers, the market price is pushed down by competing producers to increase their demand. The two markets most resemble oligopolistic markets since both markets have more or less identical products and the markets are dominated by a few producers.

2. How were the dive operators in Pemuteran able to charge 60% more than the operators in Ahmed?
The dive operators in Permuteran were able to charge 60% more than the operators in Ahmed due to the high amount of market power that each producer had and the low amount of producers in the market. Since the whole market is dominated by 3 producers, each producer has large control over the market and has a relatively inelastic demand. Therefore, each producer can charge a much higher price without losing too many customers.

3. What do you think is keeping one of the three dive operators in Pemuteran from lowering their price to, say, $60 for a day of diving? How would the other two operators respond? Would this be good or bad for the dive operators of Pemuteran? Would it be good or bad for scuba divers?
The dive operators do not lower their price because they are able to make higher economic profits at the price they are currently selling at. Since their demand curves are relatively inelastic…...

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