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The Economist has alleged that U
The Economist has alleged that U.S. airlines are colluding because even though marginal costs of airlines (i.e. fuel prices) have decreased, ticket prices haven't fallen. Suppose all U.S. airlines were in fact monopolized (i.e. owned by a single firm) and that the marginal costs of that airline fell. What rule of monopoly pricing that we have developed predicts that even when a monopolist's marginal costs fall, output increases and prices decrease?
Expert Solution
On account of the imposing a monopoly business model, the firm is the sole proprietor of the assets or resources wherein it is managing and has no substitutes for the product. Regardless of whether the expenses or cost associated with the product are diminished by the monopoly firm it need not decrease the market price of the products.
In any case, the demand curve for the monopoly firm slopes downward. This implies more number of units can only be sold at a lower price. With the decreased MC (Marginal Cost), this extra sale will prompt the gaining of supernatural benefits.
At a lower price, the demand will increment and subsequently, the output will be expanded to satisfy the demand. The price of the product is brought down to raise the demand and sell more units at lower prices.
Nonetheless, on the off chance that prices are not diminished, at that point, the sales won't be influenced because the monopoly market model has an inelastic demand.
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