The Sioux Gateway Airport (SUX) is a small airport located inSioux City, IA. Currently, American Arilines is
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The Sioux Gateway Airport (SUX) is a small airport located inSioux City, IA. Currently, American Arilines is the only airlinewhich flies out of SUX; flights go from SUX to Chicago/O'Hareairport (ORD). Other airlines, such as Frontier have consideredoffering flights from SUX to the Denver Airport (DEN).
Suppose an airport similar to SUX has a single, dominant carrier(DC) which makes 4 trips per day to and from SUX to ORD. As theonly carrier, DC can charge monopoly prices and make monopolyprofit. DC's demand function is as follows: QDC = 285 - .75PDC. DChas $15 000 per day in fixed costs and the marginal cost perpassenger is $40.
| QDC = | 285 | - | 0.75 | PDC | ||||||
| DC Fixed ?osts | $15,000 | |||||||||
| DC Marginal Cost | $40 | |||||||||
| find the profitmaximizing price for DC. How many tickets do they sell each day?What is DC's daily profit? | ||||||||||
| Dominant Carrier | ||||||||||
| Price | $0.00 | |||||||||
| Quantity Demanded | 0 | tickets | ||||||||
| Total Revenue | $0.00 | |||||||||
| Total Cost | $0.00 | |||||||||
| Profit | $0.00 | |||||||||
| Suppose another,secondary carrier (SC), decides to offer a flight each day to andfrom SUX to DEN; this monopoly market has become a two-firmoligopoly with a dominant firm. SC's demand function is as follows:QSC = 120 - .5PSC + .2PDC. SChas $5 000 per day and the marginal cost per passenger is $60.Additionally, DC's demand function shifts and changes toQDC = 225 - .75PDC + .25PSC. | ||||||||||
| QSC = | 120 | - | 0.50 | PSC | + | 0.20 | PDC | |||
| QDC = | 225 | - | 0.75 | PDC | + | 0.25 | PSC | |||
| SC Fixed ?osts | $5,000 | |||||||||
| SC Marginal Cost | $60 | |||||||||
| Add SC's demandand cost information. Also, add a formula to calculate DC and SC'sjoint profits. Be sure to connect DC's price to the SC template andSC's price to the DC template. Assuming DC continues to charge the price you found in part a, whatprice should SC charge? How many tickets do they sell? What istheir profit? (Use Solver to find this.) | ||||||||||
| Dominant Carrier | ||||||||||
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| Quantity Demanded | tickets | |||||||||
| Total Revenue | ||||||||||
| Total Cost | ||||||||||
| Profit | ||||||||||
| Secondary Carrier | ||||||||||
| Price | ||||||||||
| Quantity Demanded | tickets | |||||||||
| Total Revenue | ||||||||||
| Total Cost | ||||||||||
| Profit | ||||||||||
| Joint Profit | ||||||||||
Expert Answer:
To find the profitmaximizing price for DC we need to find the price at which the marginal cost equals the marginal revenue The marginal cost is 40 so ... View the full answer
Related Book For 
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
