Answered: Suppose the Boston to Philadelphia…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter19: Externalities And Public Goods

Section: Chapter Questions

Problem 19.3P

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Question

Suppose the Boston to Philadelphia airline route is serviced by three airlines – US Airways (Firm A) and JetBlue (Firm B) and Continental (Firm C). The demand for airline travel between these two cities is Q = 150 – p. The cost function is C(Q) = 30Q. The cost function is the same for all three airlines.

Assume that the three airlines are making investments in airline capacity. In other words, they are simultaneously choosing quantity. (Cournot Competition)

Derive US Airways’ residual demand function given JetBlue’s output, q_B, and Continental’s output, q_C.
What is the Marginal Revenue for US Airways?
Derive US Airways reaction function
Derive the market equilibrium quantity, Q*, price, p*, and Profit.

Definition Video Formula Definition Phenomenon in which market supply and demand balance each other. Market equilibrium is the economic state in which the market demand curve intersects the market supply curve, giving us the equilibrium price and equilibrium quantity for which a commodity can be sold and purchased in an economy. When market equilibrium is achieved, it suggests that all resources have been allocated efficiently and that there is just a distribution of income and resources in the economy. Video Formula

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