. Albatross Airlines (AA) 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 = 160-2p, where q is...

. Albatross Airlines (AA) 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 = 160-2p, where q is the number of passengers per day. (Assume that nobody makes one-way trips) There is an “overhead” fixed cost of $2,000 per day that is necessary to fly the airplane regardless of the number of passengers. In addition, there is a marginal cost of $10 per passenger. Thus, total daily costs are $2,000+10q if the plane flies at all. (a) Calculate the profit-maximizing price and quantity and total daily profits for Albatross Airlines. (10 marks) (b) Suppose that AA stuck with one plane. If another firm with the same costs as Albatross Airlines were to enter the Dubuque-Peoria market with a plane of its own and if the industry then became a Cournot duopoly, would the new entrant make a profit? (5 marks) (c) 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 the first and if the two firms act as Cournot oligopolists, what will be the price, quantities, and profits? (5 marks

May 25, 2022
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