Analysis in Highly Competitive Markets

Extra Credit Discussion

Short-run Analysis in Perfectly/Highly Competitive Markets
This discussion is worth up to 10 extra credit points depending on the depth, accuracy and length of your answer (at least 100 words).

Imagine a newspaper article with this title: “Airfares are expected to drop significantly in the next couple of months”. The article mentions that due to a recent fall in crude oil prices that is expected to last for a while, jet fuel prices will also fall, and the price of an average round-trip airline ticket will be about 10% lower that the same time last year.
Explain how a fall in crude oil prices changes the marginal cost of producing air flights and changes the equilibrium price and quantity of air flights in the short run, as analyzed in Chapter 15 (Module 5) – Perfect Competition. Be specific about which curve(s) shift and in which direction, and what is the impact on the equilibrium variables. While you must draw a graph to conduct your analysis and arrive at your conclusions, you need not post your graph with your answer.

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