F5: Market Structure This covers Chapter 13 and 14. The National Atmospheric and
ID: 1105894 • Letter: F
Question
F5: Market Structure
This covers Chapter 13 and 14.
The National Atmospheric and Space Administration (NASA) is ending its space shuttle program, but has developed programs to encourage firms to enter the market for space flight. Once the shuttle is ended, the market will be monopolized by the Russian Space Agency, which charges a monopoly price of $47 million per astronaut for a trip to the International Space Station.
Under its C3PO (Commercial Crew & Cargo Program), NASA is investing financial and technical resources to stimulate efforts within the private sector to develop and demonstrate safe, reliable, and cost-effective space transportation capabilities.
If NASA is successful, in what ways will this effort change the Space Transportation market?
Explanation / Answer
Russian space agency is the only one seller in the market and so it behaves like a monopolist and charges a high price. If the NASA is successful, more private players would be able to develop cheaper rockets and have cost efficient space transport facility. This implies that there would be more than one seller in the market. However, the cost would still remain for most of the private firms, so only few would enter. Thus, changing the market structure from monopoly to oligopoly, where there would be few firms catering to the market needs.
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