economic short essay question


Consider the statements made by Alan Accountant and Edwina Economist. Say whether you believe each statement is correct or incorrect. Briefly explain your answer. Note that most of the marks will be given for your explanation.  Alan Accountant and Edwina Economist are discussing whether the two suppliers of air flights within Ozland, Cheap Flights and Qanwings, should be allowed to merge to become a single supplier. Alan says: ‘A single supplier will mean that the average cost of supply is lower due to economies of scale in the supply of air flights. Hence allowing the merger will definitely increase total surplus in the market for flights within Australia’. Edwina Economist disagrees. She says: ‘I agree about the potential benefits from a merger coming from lower costs. But we cannot say that total surplus will definitely increase. It is also necessary to take into account how the merger affects market power’.

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