Suppose the airline industry consisted of only two firms: American and Texas Air Corp. Let the two firms have identical cost functions, C(q)=28q. Assume that the demand curve for the industry is given by P = 100-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 units of output.
Suppose the airline industry consisted of only two firms: American and Texas Air Corp. Let the two firms have identical cost functions, C(q)=28q. Assume that the demand curve for the industry is given by P = 100-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 units of output.
Chapter10: Monopolistic Competition And Oligoply
Section: Chapter Questions
Problem 9SQP
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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) = 28q. Assume that the demand curve for the industry is
given by P = 100 - 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
units of output.
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