American Airlines and British Airways are proposing to merge
a. American Airlines and British Airways are proposing to merge. If British pilots and American pilots are represented by different unions, how would this merger affect airline costs?
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Task 2:
Activity #6 DUE: Thursday
1. You are an economist for a U.S. Manufacturer, who is considering expanding sales into Europe. Your market research has identified the market potential in France, Italy, and Spain as described next:
Success Level France Italy Spain
Probability Units Probability Units Probability Units
Big 0.3 1,000,000 0.4 900,000 0.4 700,000
Mediocre 0.3 600,000 0.4 700,000 0.3 300,000
Failure 0.4 0 0.2 0 0.3 0
The product sells for $12 and has unit costs of $10. If you can enter only one market, and the cost of entering the market (regardless of which market you select) is $300,000, should you enter one of these markets? If so, which one? If you enter, what is your expected profit?
2. A reserve price is a minimum price set by the auctioneer. If no bidder is willing to pay the reserve price, the item is unsold at a profit of $0 for the auctioneer. If only one bidder values the item at or above the reserve price, that bidder pays the reserve price. An auctioneer faces two bidders, each with a value of either $30 or $80, with both values equally probable. What reserve price should the auctioneer set, and what is the expected revenue from auctioning the item with and without a reserve price? Consider the problem above, but now each bidder has a value of either $60 or $80. What reserve price should the auctioneer set, and what is the expected revenue from auctioning the item with and without a reserve price?
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