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AUSTRALIAN AIRLINE INDUSTRY

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 AUSTRALIAN AIRLINE INDUSTRY

Part A

Question 1

An economy of scale is referred to as cost advantage, which arises from increase in the level of output. It mainly refers to carrying out of production activities at a low level of cost involved. Such economies of scale arises mainly owing to the prevalence of inverse relation between fixed costs per unit and the quantity of goods produced (Borenstein and Rose, 2014, p.100). The economy of scale is also capable of reducing the amount of variable costs per unit owing to synergies and the efficiencies with respect to operations involved.

An economy of scale is very important in case of markets practicing Monopoly. This is backed by the fact that, the economies of scale can help the monopolists enhance its level of profit level by enhancing its level of production at a very low level of cost involved.

Question 2   

In 2002-2003, only two major airline sectors remained dominant in Australia. One was the airline industry, which was mainly domestic based, and another which was mainly international based. The international based Airline industry of Australia has remained regulated to some extent in the level mainly based on Commonwealth (De Neufville,  2016, p.61). This is backed by the fact that the Commonwealth level is mainly subjected to the capacity controls in detail. Such capacity controls are mainly a part of an agreement based on bilateral based air service. Such an agreement mainly refers to a system long established underpinning the industry. It is the air service agreements (ASA) that assists in providing the international based legal framework. Such a framework assists in enabling scheduled international based services within the countries. On the other hand, in case of the domestic based airline sector, the robust kind of competition that previously existed in that industry diminished largely owing to certain deregulations practiced within the industry since 1989. Such a deregulation had provided the opportunity for restrained kind of competition in between Virgin Blue and Qantas. Moreover, Qantas is regarded to the sole provider of nation based scheduled services.

 Some parts of the Australian Airline industry has been characterized by economies of scale. The economies of scale mainly occurs owing to decrease in the cost of production which is mainly average based. This decrease in the rate of average cost is backed by the fact that the Airline industry is a large provider of services. This implies the fact that the Industry in long run, gravitates to attain natural monopoly.

The persistence of monopolization in the airline industry should be prevented by practicing some ongoing regulations in order to guarantee commercial viability of its services in the long term.

Part B

Question 1

   Business cycle is also referred to as economic cycle. It usually refers to economic fluctuations faced over a period of time (Homsombat et al. 2014, p.14).  Exact tracking of the cycle helps the business professionals make proper forecasts based on the direction in which the economy is moving.

Over here, as per the current data provided based on France, it can be seen that France is currently  showing an upswing trend. The analysis of business cycle is mainly analysed by focussing on Gross Domestic Product (GDP) of the nation concerned, prevalent rate of unemployment and the level of household income. This is backed by the fact that from the table provided, it can be seen that the level of rate of unemployment has shown a downward trend, the level of household income has increased substantially while the level of GDP has remained the same. From this fact, it can be implied that that France, currently is showing an upswing type of business cycle. This means that the economy is progressing gradually. It should also be taken under consideration that the rate of inflation has shown an increasing trend.

Question 2

In the above figure, PL represents the price level while Y represents Real GDP. Over here, AS represents aggregate supply curve while AD represents Aggregate demand curve.

From the figure,  it can be analyzed that the level of aggregate demand has increased from AD1 to AD2 owing to decrease in the level of unemployment to 9.5% as compared to the previous period having an unemployment rate of 9.6%. According to Yang et al. 2015, p.451), this decrease in the level of unemployment represents the fact that increase in the level of unemployment has led to increment in the level of demand of the people, thereby leading to shift in the aggregate demand curve. This has also led to overall increment in the level of income earned by the households. This increment in the level of aggregate demand has led to good flow of income within the economy, thereby, enhancing the overall household income from  1467 euro per month to 1480 euro per month. The level of GDP(Y) has been shown to have increased from Y1 to Y2 in order to match itself to level of increased rate of inflation faced by the economy at present. Moreover, on an overall basis, the rate of GDP has remained constant at 0.5%.

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