Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Business Economics Expert

Cournot's Nash equilibrium for two airline firms American and Texas Air Corp.

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. Suppose 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.

 

a) Compute 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?

[Hint: Remember to solve this exercise that you need to make the derivative of the profits of each firm with respect to its own product (Q1) equal to zero. To find out the derivative remember that if Y=aX+bX2+cXZ, then dY/dX=a+2bX+cZ.]

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?

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M916111

Have any Question? 


Related Questions in Business Economics

You hold an auction among three bidders you estimate that

You hold an auction among three bidders. You estimate that each bidder has a value of either $16 or $20 for the item, and you attach probabilities to each value of 50%. What is the expected price? If two of the three bid ...

Mr amp mrs dier wish to purchase a boat in 8 years when

Mr. & Mrs. Dier wish to purchase a boat in 8 years when they retire. They are planning to purchase the boat using proceeds from the sale of their property which is currently worth $90,000 and its value is growing at 7 pe ...

An investment has an expected return of 12 percent per year

An investment has an expected return of 12 percent per year with a standard deviation of 24 percent. Assuming that the returns on this investment are at least roughly normally distributed, how frequently do you expect to ...

Using the guess and verify method you can clearly conclude

Using the guess and verify method, you can clearly conclude that an outcome is consistent with the concept of Nash equilibrium only if: (Explain Reasoning) A. You find that both players are better off in that outcome tha ...

Question consider the following inventory problem you are

Question: Consider the following inventory problem. You are running a store that sells trucks. Letd i denote the number of trucks you expect to sell in monthi, i = 1, ... , n.Your store can only storeStrucks and it costs ...

Paper has to be on monster beverage corpthe organizations

Paper has to be on Monster Beverage Corp. The organization's strategic plan calls for an aggressive growth plan, requiring investment in facilities and equipment, growth in productivity, and labor over the next five year ...

During the past year gasoline prices have been very

During the past year, gasoline prices have been very volatile. One reason given for at least some of the volatility is the threat of war between Israel and Iran. More recently, there has been a report of serious fire dam ...

Protecting the domestic market industrial policy and

PROTECTING THE DOMESTIC MARKET: INDUSTRIAL POLICY AND STRATEGIC FIRM BEHAVIOUR Abstract Foreign firms to break into a new market commonly undercut domestic prices and, hence, subsidise the consumer's costs of switching i ...

Consider an industry with significant barriers to entry and

Consider an industry with significant barriers to entry and consisting of two firms producing a homogenous product. Under which situation are these firms more likely to compete in quantity rather than price? A) when ther ...

Tyler just wrecked his new nissan and the accident was his

Tyler just wrecked his new? Nissan, and the accident was his fault. The owner of the other vehicle got two estimates for the? repairs: one was for ?$796 and the other was for ?$845 . Tyler is thinking of keeping the insu ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate