Question 3 6 pts In this question you will be asked to consider two out of four

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Question 3 6 pts In this question you will be asked to consider two out of four different posible indutres The four possible industries: Pizza Places in the Twin Cities,Passenger Arines in thels Tennis Balls in the US, Colleges (or Universities) in the US. (a) Choose one of these four industries (make your choice clear, Is tis ndusty monopolistically competitive or oligopolistic? Briefly explain your choice. If there is a particular complicating factor, mention it) (b) Choose another of these four industries (different than l-make your choce deat h this industry monopolistically competitive or oligopolisic? Brely epin your dhoice there is a particular complicating factor, mention t) d clearly bbel each part In the box below make sure you answer ALL parts (a)- tol,.an your answer (part (a), (b), etc.) 8

Explanation / Answer

(a) For this part I choose Passenger Airlines industry in US. This industry is dominated by few large firms whose pricing decisions are interdependent. A price increase (decrease) by one airline is matched by a price increase (decrease) by other rival firms. Also, since airline industry requires very high capital costs, there is high barrier to entry. Therefore this industry is oligopolistic.

(b) For this part I choose colleges and universities in US. This industry is characterized by presence of numerous colleges and universities, each of which offer a homogenous (education) but differentiated product (different streams of education) to numerous students. Entry barriers are low. Each college and university faces a downward sloping demand curve and can set their own price (tuition fee). Therefore this industry is monopolistic competitive.

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