Albatross Airlines has a monopoly on air travel between Peoria and Dubuque. If A

Question

Albatross Airlines has a monopoly on air travel between Peoria and Dubuque. If Albatross makes one trip in each direction per day, the demand schedule for round trips is q= 200-2p, where q is the number of passengers per day. (assume that nobody makes one way trips) there is an overhead fixed cost of 2000 dollars per day that is necessary to fly the airline regardless of the number of passengers in addition, there is marginal cost of $10 per passenger. Total daily costs are $2000+10q Calculate the profit-maximizing price and quantity and total daily profits for Albatross Airlines Suppose another firm with the same costs as AA is thinking about entering the Dubuque-Peoria market, expecting the industry to become a Cournot duopoly (characterized by Cournot quantity competition). Would this second firm enter the industry? Supposed the demand for airplane trips between the two places increases to q= 400-4p and that the original airplane had a capacity of 90 passengers. If AA added a second plane with the same costs and capacity as the first plane, what price would it charge? How many tickets would it sell and how much would its profits be? Suppose that AA stuck with one plane and another firm entered the market with a plane of its own. If the second firm has the same cost function as AA and if the two firms act as Cournot oljgopplists, what will be the equilibrium price, quantities and profits? If AA could prevent entry by the potential competitor by adding a second plane, would it do so?

Explanation / Answer

1.) p= 45, q=70, Pie = $450 per day.

2. ) No ; Losses would be about $ 900 per day

3. ) p= $ 60; Pie = $ 2000

4.) p = $ 40, Q= 80, Profit = $ 400

5.) No

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