BUSINESS MANAGERIAL ECONOMICS

Business Managerial Economics

Business Managerial Economics

Question 1

Out of airline industry, banking industry, IT industry and agricultural industry, the most perfectly competitive industry is airline industry. In a perfectly competitive industry, the consumer is faced with many brands. However, because the brands are virtually identical, again information gathering is relatively inexpensive. Faced with a monopolistically competitive industry, to select the best out of many brands the consumer must collect and process information on a large number of different brands. In many cases, the cost of gathering information necessary to selecting the best brand can exceed the benefit of consuming the best brand (versus a randomly selected brand).

Air transport has grown prodigiously since its inception immediately after World War I. In the last three decades, the industry has doubled in each decade. Global air passenger traffic rose since 1950 at an annual rate of 9 percent, airfreight increased by 11 percent and mail traffic - by 7 percent. The rate of growth for passengers is declining somewhat: in the period 1991-2000 international scheduled traffic grew by 9% per annum and domestic traffic - by 7% per annum.

In Europe, the industry has doubled its revenues five times in the 40 years from 1960 to 2000. In other words, in 2000 air traffic was 32 times larger than in 1960. With these increases came also a major decline in fares. Airline yields in the last three decades have fallen at a rate of about 2.5% per annum.

The reduction was made possible by improved technology and enhanced efficiency. Lower air fares, in turn, boosted demand. Airline revenue has grown since 1980 by about 3% a year in real terms.

Evidence suggests that consumers use information obtained from advertising not only to assess the single brand advertised, but also to infer the possible existence of brands that the consumer has, heretofore, not observed, as well as to infer consumer satisfaction with brands similar to the advertised brand.

Question 2

Throughout its history, the French wine industry has been shaped by the influences of both external and internal forces. Three of the more prominent and pervasive influences came from the English/British people through both commercial interest and political factors, the Dutch who were significant players in the wine trade for much of the 16 and 17th century and the Catholic Church which held considerable vineyard properties until the French Revolution.

The French wine industry would be influenced and driven by the commercial interests of the lucrative English market and Dutch traders. Prior to the French Revolution, the Catholic Church was one of France's largest vineyard owners-wielding considerable influence in regions such as Champagne and Burgundy where the concept of terroir first took root. Aided by these external and internal influences, the French wine industry has been the pole bearer for the world wine industry for most of its history with many of its wines considered the benchmark for their particular style. The late 20th and early 21st century brought considerable change—earmarked by a changing global market and competition from other ...