Question: It's year 2017, and Boeing is launching the B797 while Airbus is launching the A360. Assume that the companies stop selling their other planes, and

It's year 2017, and Boeing is launching the B797 while Airbus is launching the A360. Assume that the companies stop selling their other planes, and there are no other plane makers in the world (sorry, Bombardier).

Airline companies view B797's and A360's as perfect substitutes, and the demand for these planes is: Q(P) = 5500 - 10P, where P is in millions of US dollars.

Airbus and Boeing have the same cost function: C(q) = 40000 + 100q + 0.05q2 , where the cost is in millions of US dollars. Assume that the $40 billion constant in the cost function is the sunk cost of developing the aircraft, so it is borne even if q=0.

a) What price would Boeing charge if Airbus did not exist?

b) What would Boeing's profit be if Airbus did not exist?

c) Suppose Boeing and Airbus merge. What is the cost function of the combined company? Be very careful.

d) What is the profit of the merged company?

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