Question 3 Suppose the airline industry consisted of only two firms: American an

Question

Question 3 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 the demand curve for the industry is given by P 100 Qand 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? a. (10 marks) b. 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? (10 marks) ·

Explanation / Answer

the rate at which money circulates through an economy is called as velocity of money.Higher of it denoted faster circulation so create more demand.

Velocity of money=GDP/Money supply=86500/30000=2.88

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