Initially, American Airlines is the only carrier for the New York to Los Angeles route in...

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Initially, American Airlines is the only carrier for the New York to Los Angeles route in the U.S. market. Suppose American faces a linear market demand curve: P = 1,140-2Q Where P is price in dollars of a round trip flight and Q is measured in flights per month. American has the following variable costs (for purposes of this problem, you may assume that fixed costs associated with this route are zero): TVCA= 2QA a. Given that American is the only supplier in this market, determine the price American will charge the quantity of flights per month and the profits earned assuming American's objective is profit maximization. Now suppose the situation changes and United Airlines decides to enter the market for this route. Being new to the route, United's costs are different from American's. Again, assuming no fixed costs, United's costs for the route are given by: TVCU = 3Qu b. If these two firms behave as profit-maximization Cournot duopolists choosing output levels, determine each firm's output reaction function. c. How many flights will each firm have? d. What will be the total number of flights and what will be the market price for round trip tickets? e. Compare the market outcomes under monopoly conditions to those with two competitors. Specifically, how does price and output (flights per month) compare after entry by United? Initially, American Airlines is the only carrier for the New York to Los Angeles route in the U.S. market. Suppose American faces a linear market demand curve: P = 1,140-2Q Where P is price in dollars of a round trip flight and Q is measured in flights per month. American has the following variable costs (for purposes of this problem, you may assume that fixed costs associated with this route are zero): TVCA= 2QA a. Given that American is the only supplier in this market, determine the price American will charge the quantity of flights per month and the profits earned assuming American's objective is profit maximization. Now suppose the situation changes and United Airlines decides to enter the market for this route. Being new to the route, United's costs are different from American's. Again, assuming no fixed costs, United's costs for the route are given by: TVCU = 3Qu b. If these two firms behave as profit-maximization Cournot duopolists choosing output levels, determine each firm's output reaction function. c. How many flights will each firm have? d. What will be the total number of flights and what will be the market price for round trip tickets? e. Compare the market outcomes under monopoly conditions to those with two competitors. Specifically, how does price and output (flights per month) compare after entry by United?

Answer rating: 100% (QA)

a Under monopoly by American TR PQ 1140 2QQ TVCA 2Q2 MR TR 1140 4Q MC ... View the full answer