Suppose the airline industry consisted of only two firms: American and Texas Air Corp. Let the two firms have identical cost functions, C(q) = 40q. Assume that the demand curve for the industry is given by P= 130 - Q and that each firm expects the other to behave as a Cournot competitor. Calculate the Cournot-Nash equilibrium for each firm, assuming that each chooses the output level that maximizes its profits when taking its rival's output as given. What are the profits of each firm? (Round all quantities and dollar amounts to two decimal places.) When competing, each firm will produce 30 units of output. In turn, each firm will earn profit of $ 900. What would be the equilibrium quantity if Texas Air had constant marginal and average costs of $25 and American had constant marginal and average costs of $40? If Texas Air had constant marginal and average costs of $25 and American had constant marginal and average costs of $40, American would produce 25 units and Texas Air Corp. would produce 40 units. In turn, American's will earn profit of $ 625 and Texas Air Corp. will earn profit of $ 1600. Assuming that both firms have the original cost function, C(g) = 40g, how much should Texas Air be willing to invest to lower its marginal cost from 40 to 25, assuming that American will not follow suit? Texas Air Corp. would be willing to invest $ 700. How much should American be willing to spend to reduce its marginal cost to 25, assuming that Texas Air will have marginal costs of 25 regardless of American's actions? American would be willing to invest $
Suppose the airline industry consisted of only two firms: American and Texas Air Corp. Let the two firms have identical cost functions, C(q) = 40q. Assume that the demand curve for the industry is given by P= 130 - Q and that each firm expects the other to behave as a Cournot competitor. Calculate the Cournot-Nash equilibrium for each firm, assuming that each chooses the output level that maximizes its profits when taking its rival's output as given. What are the profits of each firm? (Round all quantities and dollar amounts to two decimal places.) When competing, each firm will produce 30 units of output. In turn, each firm will earn profit of $ 900. What would be the equilibrium quantity if Texas Air had constant marginal and average costs of $25 and American had constant marginal and average costs of $40? If Texas Air had constant marginal and average costs of $25 and American had constant marginal and average costs of $40, American would produce 25 units and Texas Air Corp. would produce 40 units. In turn, American's will earn profit of $ 625 and Texas Air Corp. will earn profit of $ 1600. Assuming that both firms have the original cost function, C(g) = 40g, how much should Texas Air be willing to invest to lower its marginal cost from 40 to 25, assuming that American will not follow suit? Texas Air Corp. would be willing to invest $ 700. How much should American be willing to spend to reduce its marginal cost to 25, assuming that Texas Air will have marginal costs of 25 regardless of American's actions? American would be willing to invest $
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
1
Transcribed Image Text:Suppose the airline industry consisted of only two firms: American and Texas Air Corp. Let the two firms have identical cost functions, C(q) = 40g. Assume that the demand curve for the industry is given by
P= 130 - Q and that each firm expects the other to behave as a Cournot competitor.
Calculate the Cournot-Nash equilibrium for each firm, assuming that each chooses the output level that maximizes its profits when taking its rival's output as given. What are the profits of each firm? (Round all
quantities and dollar amounts to two decimal places.)
When competing, each firm will produce 30 units of output.
In turn, each firm will earn profit of $ 900 .
What would be the equilibrium quantity if Texas Air had constant marginal and average costs of $25 and American had constant marginal and average costs of $40?
If Texas Air had constant marginal and average costs of $25 and American had constant marginal and average costs of $40, American would produce 25 units and Texas Air Corp. would produce 40 units.
In turn, American's will earn profit of $ 625 and Texas Air Corp. will earn profit of $ 1600 .
Assuming that both firms have the original cost function, C(q) = 40q, how much should Texas Air be willing to invest to lower its marginal cost from 40 to 25, assuming that American will not follow suit?
Texas Air Corp. would be willing to invest $ 700 .
How much should American be willing to spend to reduce its marginal cost to 25, assuming that Texas Air will have marginal costs of 25 regardless of American's actions?
American would be willing to invest $
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education